Schaeffer's Trading Floor Blog

Stocks On the Move: GoPro Inc, Sharps Compliance Corp., and Cliffs Natural Resources Inc

GPRO, SMED, and CLF are moving sharply in Monday's trading

by 10/13/2014 12:24 PM
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U.S. stocks are modestly lower this afternoon, extending Friday's downside momentum. Among the names making significant moves are mobile camera maker GoPro Inc (NASDAQ:GPRO), medical waste issue Sharps Compliance Corp. (NASDAQ:SMED), and mining concern Cliffs Natural Resources Inc (NYSE:CLF). Here's a quick look at how GPRO, SMED, and CLF are faring on the charts today.

  • GPRO shares fell more than 13.5% in intraday action, but have pared their losses to 7.3% to trade at $78.85. Pressuring the stock are reports that GoPro Inc's camera may have been responsible for a serious ski accident involving Formula One's Michael Schumacher. Prior to today's slump, GPRO had outperformed the broader S&P 500 Index (SPX) by 119 percentage points during the past two months, yet analysts remain unmoved, with just two out of nine offering up "strong buy" opinions. In light of today's plunge -- which landed the stock on the short-sale restricted (SSR) list -- bears are taking to the options pits. The equity's 30-day at-the-money (ATM) implied volatility (IV) hit a 52-week high earlier, reflecting a growing demand for short-term contracts, and intraday put volume is running at a 44% mark-up to the norm. Digging deeper, it looks like short-term bears are buying to open the October 70 and 80 puts, amid expectations for a steeper plunge by Friday's close, when front-month options expire.

  • SMED has tacked on 15.7% to flirt with $5.60, and earlier notched a four-year peak of $6.80, thanks to escalating concerns about Ebola. The stock has tacked on 17.3% year-to-date, and option traders today are gambling on more short-term upside. The security's 30-day ATM IV has popped 73.4% to 83.6%, and call volume is running at 74 times the intraday norm. Most of the action has transpired at the November 7.50 call, where traders are seemingly buying the contracts to open, amid hopes for Sharps Compliance Corp. to extend its quest for new highs, and ultimately topple $7.50 by the close on Friday, Nov. 21, when the options expire.

  • After exploring decade-plus lows last week, the shares of CLF have rebounded 12.6% to linger near $8.24, as a surge in Chinese imports has bolstered steel and iron ore futures. The sector rally has overshadowed a negative note from J.P. Morgan Securities, which this morning downgraded Cliffs Natural Resources Inc to "neutral" from "overweight," and slashed its price target to $5 from $18. Today's turnaround could have a few bears spooked, as short interest accounts for nearly 44% of CLF's total available float, representing more than a week's worth of pent-up buying demand, at the equity's average pace of trading. In options land, the stock's 30-day ATM IV was last seen 4% higher at 110.5%, and tagged a new annual high earlier, with new positions being opened at the October 9 call.

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Analyst Downgrades: Google Inc, J C Penney Company Inc, and MasterCard Inc

Analysts downwardly revised their ratings on GOOGL, JCP, and MA

by 10/13/2014 9:19 AM
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Analysts are weighing in today on Internet titan Google Inc (NASDAQ:GOOGL), retailer J C Penney Company Inc (NYSE:JCP), and credit card name MasterCard Inc (NYSE:MA). Here's a quick roundup of today's bearish brokerage notes on GOOGL, JCP, and MA.

  • GOOGL got hit with a price-target cut to $650 from $685 at Cowen; however, the brokerage firm maintained its "outperform" rating on the shares. Technically speaking, it's been a disappointing year for the stock, which is down 1% to trade at $555.19, and was recently rebuffed at its 50-day moving average. However, Wall Street is overwhelmingly bullish toward Google Inc, as 26 out of 29 covering analysts have handed out "buy" or better ratings, versus three "holds" and not a single "sell" opinion. If the equity continues to struggle, additional downward price-target revisions could result in headwinds. Looking ahead, GOOGL will report third-quarter earnings after the close this Thursday, Oct. 16.

  • JCP saw its price target halved to $5 from $10 at UBS, which also cut its rating to "sell" from "neutral." However, shortly after this bearish note, the retailer announced Marvin Ellison will be its next president and CEO (succeeding Myron Ullman), causing the shares to spike nearly 5% in electronic trading. Taking a step back, shares of J C Penney Company Inc have plummeted 22.2% in 2014 -- exacerbated by last week's disappointing analyst day -- to rest at $7.12. Meanwhile, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have been buying to open JCP puts over calls at a faster-than-usual rate. Specifically, the equity's 10-day put/call volume ratio across those exchanges is 1.11, in the 87th percentile of its annual range.

  • Finally, MA received a price-target cut to $88 from $91 at Piper Jaffray, which nevertheless reaffirmed its "overweight" opinion. The negative revision is understandable, given the stock's 15.6% year-to-date loss to trade at $70.50. Looking at the sentiment picture more broadly, 68% of the brokerage firms following MasterCard Inc have assigned "buy" or better ratings to the shares, and the average 12-month price target of $89.02 lies in territory yet to be charted. In other words, if the security sustains its current trajectory, another round of bearish brokerage notes could come down the pike, pressuring MA even further south.

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Buzz Stocks: CSX Corporation, Shutterfly, Inc., and Twitter Inc

Today's stocks to watch in the news include CSX, SFLY, and TWTR

by 10/13/2014 9:07 AM
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U.S. stocks are flirting with breakeven this morning, following one of the worst weeks in recent history. In company news, today's stocks to watch include railroad issue CSX Corporation (NYSE:CSX), personal publishing provider Shutterfly, Inc. (NASDAQ:SFLY), and microblogging bigwig Twitter Inc (NYSE:TWTR).

  • CSX is headed 9.2% higher ahead of the bell, amid reports that Canadian Pacific Railway Limited (USA) (NYSE:CP) approached the firm about a merger. On the charts, CSX has added 4.1% in 2014, landing at $29.94 on Friday, and touched an all-time peak of $32.66 in September. Nevertheless, Wall Street is skeptical, with just four out of 17 analysts offering up "strong buy" opinions. Plus, on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 4.97 sits just 2 percentage points from an annual high. In other words, option buyers have purchased CSX Corporation puts over calls at a much faster-than-usual clip during the past two weeks, most likely to bet on an earnings miss after the close tomorrow, when CSX will unveil its third-quarter report.

  • SFLY, on the other hand, is pointed 8% lower in pre-market trading, amid reports that private equity firm Silver Lake Management LLC failed to reach a deal to buy the company -- as well as Snapfish -- by the weekend deadline. Technically speaking, SFLY has surrendered 7.8% in 2014, finishing at $46.96 last week. From a sentiment perspective, most analysts are optimistic, with six out of 10 offering up "buy" or better opinions. On the flip side, short interest accounts for 12.5% of Shutterfly, Inc.'s total available float, and would take roughly a week to buy back, at the equity's average pace of trading.

  • Finally, TWTR -- which settled at $50.40 on Friday -- is pointed 0.7% higher before the open, after the company said it teamed up with one of France's largest banks to allow customers to transfer funds via tweet. Twitter Inc shares have outperformed the broader S&P 500 Index (SPX) by a whopping 49 percentage points during the past three months, yet not everyone has boarded the bullish bandwagon. In fact, 13 out of 28 analysts maintain tepid "hold" or worse ratings, and the consensus 12-month price target of $53.42 stands just a stone's throw from the stock's current perch. Should more analysts follow Susquehanna's lead, a round of upgrades and/or price-target hikes could add fuel to the equity's fire.

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Overbought VIX: Time to Buy and Hold SPY?

The CBOE Volatility Index (VIX) rallied into 'overbought' territory last week

by 10/13/2014 9:01 AM
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Well, it took a lot of work, but we finally got there. By there I mean that the CBOE Volatility Index (VIX) finally closed 20% above its 10-day simple moving average, the criteria I use to officially declare VIX overbought. We hit it intraday at other times, but haven't closed there since late July.

There's absolutely nothing magical about a 20% violation. Especially when you consider there's nothing magical about VIX to begin with. The Chicago Board Options Exchange (CBOE) just changed its methodology a week ago, so in a sense it's all apples to oranges anyway. I use 20% for the very scientific reason that it's a round number and gives us a respectable number of data points to examine.

At 10% or 15%, you'll get more "signal" -- and, of course, more "noise." At 30%, you basically get serious implosions. And so on. At 20%, you get about three to four signals per year. This is actually the fourth one in 2014. Here's a rundown of the violations since 2009:

Major Violations in the CBOE Volatility Index (VIX) Since 2009

I included both the July 17 and July 31 occurrences for now, but ultimately I'm going to eliminate the July 31 event, as it includes too much overlapping data. It's also not quite three months in either case. So basically, unless the SPDR S&P 500 ETF Trust (SPY) closes above 195.71 on Friday, it will mark the first time in two-and-a-half years that going long when the VIX gets officially overbought and holding for three months hasn't worked.

Having said that, the average returns of the strategy are 4.23%, and the median returns are 4.49% -- not enormously different from a randomly timed three-month hold (average 3.67%, median 4.52%). That includes the July 17 numbers, but not the July 31 numbers. The trade has worked much better over the one-month horizon: 2.13% average vs. 1.31% random average, and 3.93% median vs. 1.83% random median.

The one-month trade has worked seven straight times now (again, not counting July 31). But, it was pretty choppy before that, with five misses in eight tries. And, two of those misses were pretty bad -- a 6.16% hit in July/August 2011, and a 9.55% miss in April/May 2010 (the "flash crash").

Anecdotally, it does feel more like 2011 than anything else of recent times. SPY dropped about 12% from mid-July into early August, and then meandered for two months before ultimately bottoming on Oct. 4. The ultimate drop was about 21% over the course of nearly three months. VIX incidentally got something like 70% above its 10-day simple moving average at its peak. So, overbought can beget really overbought at times.

Could we see something similar this year? I have no idea. If we do, though, it means ultimately declining to something like 160 in SPY in November/December. It's more likely we see a whoosh and turnaround way before. I'm just throwing the precedent out there.

It's also worth noting that the end of 2011 turned into a really great buying opportunity -- it just took a lot of angst to get there first.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

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Analyst Upgrades: Facebook Inc (FB), EXACT Sciences Corporation, and SunPower Corporation

Analysts upwardly revised their ratings on FB, EXAS, and SPWR

by 10/13/2014 8:48 AM
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Analysts are weighing in today on social network Facebook Inc (NASDAQ:FB), diagnostics firm EXACT Sciences Corporation (NASDAQ:EXAS), and solar concern SunPower Corporation (NASDAQ:SPWR). Here's a quick roundup of today's bullish brokerage notes on FB, EXAS, and SPWR.

  • FB received a price-target hike to $92 from $90 at JMP Securities, which also underscored its "outperform" rating on the equity. On the charts, the stock has tacked on a healthy 33.4% year-to-date, but is currently testing support at its 80-day moving average (located at $72.94). Taking a step back, this morning's bullish brokerage note is par for the course, as 29 out of 32 analysts covering Facebook Inc have doled out "buy" or better endorsements, compared to three "holds" and not a single "sell" recommendation. What's more, the security's average 12-month price target of $86.93 stands at a 19.2% premium to Friday's close at $72.91.

  • After last week receiving word that its colon cancer test will be covered by Medicare and Medicaid -- and gapping nearly 36% higher on Friday as a result -- EXAS saw its price target raised by a trio of Wall Street experts. Specifically, Benchmark, Maxim, and Wedbush upped their respective expectations for the shares to $42 (from $25), to $12 (from $8), and to $19 (from $14). On the charts, EXACT Sciences Corporation has more than doubled in value this year to trade at $24.60. Nevertheless, nearly 33% of the stock's float is sold short, which would take about 13 sessions to buy back, at typical daily trading volumes. In other words, if EXAS can muscle higher, it could benefit from tailwinds as the short sellers race to cover their bearish bets.

  • Finally, Raymond James upped its opinion on SPWR to "outperform" from "market perform." Not everyone's so confident of the shares, though. In particular, more than one-fifth of the stock's float is dedicated to short interest, which would take approximately seven sessions to repurchase, at SunPower Corporation's average daily trading levels. Should the security continue to strut up the charts -- SPWR has gained 12.3% since mid-April, when it touched an annual low of $25.38 -- a short-covering rally could ensue. At present, SPWR is perched at $28.49.

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