Schaeffer's Trading Floor Blog

Stocks On the Move: Digital Ally, Inc., GrubHub Inc, and Qihoo 360 Technology Co Ltd

DGLY, GRUB, and QIHU are moving sharply in Monday's trading

by 8/25/2014 1:44 PM
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U.S. stocks have retreated from their early highs -- which featured a brief, first-ever move above 2,000 for the S&P 500 Index (SPX) -- but M&A enthusiasm still has the major equity indexes on positive ground this afternoon. Among the names making notable moves are surveillance specialist Digital Ally, Inc. (NASDAQ:DGLY), food delivery firm GrubHub Inc (NYSE:GRUB), and anti-virus issue Qihoo 360 Technology Co Ltd (NYSE:QIHU). Here's a quick look at how DGLY, GRUB, and QIHU are faring on the charts today.

  • Shares of DGLY have spiked more than 59% today to trade at $12.64, bringing the stock back into positive territory on a year-to-date basis (by more than 37%). Digital Ally, Inc. is a maker of wearable body cameras, and -- like its sector peer TASER International, Inc. (NASDAQ:TASR) -- the stock has experienced a surge of interest following the tragic events in Ferguson, Missouri. It's a rare bit of attention for DGLY, which typically flies under Wall Street's radar. The stock isn't even optionable, and there's not a single analyst rating on the name. However, bears have placed a few bets on DGLY, as 11.2% of the equity's float is dedicated to short interest.

  • GRUB has plummeted 7.6% to trade at $39.53, after the company unveiled plans to sell 10 million shares in a follow-on public offering. Today's steep pullback appears to have bottomed out in the $38-$39 area -- which previously marked a few tops for GrubHub Inc shares, but may now be emerging as support. Most analysts have high hopes for the Wall Street newcomer, which just made its public trading debut back in April. Among the four brokerage firms following GRUB, all of them maintain "buy" or better ratings.

  • QIHU has tanked 9.1% to $92.59, with traders unimpressed by last night's second-quarter earnings report -- which revealed shrinking margins for the Beijing-based tech firm. Analysts at Barclays brushed off the troubling news, upping their price target to $145 from $139. Most brokerage firms have slightly lower expectations for Qihoo 360 Technology Co Ltd, which sports an average 12-month price target of $134.78. However, with nine analysts out of 10 holding a "strong buy" rating on QIHU, the stock could be vulnerable to downgrades if the post-earnings sell-off persists.

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Analyst Update: Foot Locker, Inc., Skechers USA Inc, and TripAdvisor Inc

Analysts adjusted their ratings on FL, SKX, and TRIP

by 8/25/2014 12:05 PM
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Analysts are weighing in today on shoe peddlers Foot Locker, Inc. (NYSE:FL) and Skechers USA Inc (NYSE:SKX), and online travel firm TripAdvisor Inc (NYSE:TRIP). Here's a quick look at today's brokerage notes on FL, SKX, and TRIP.

  • FL's better-than-expected second-quarter results from last Friday morning prompted a number of brokerage firms to up their opinions on the retailer. Specifically, seven analysts raised their price targets on Foot Locker, Inc. -- including Sterne Agee, which revised its target to $65 from $60. On the flip side, Piper Jaffray cut its rating to "neutral" from "overweight." Additional price-target hikes could be forthcoming, as FL's consensus 12-month price target of $54.53 is flush with its current perch. Technically speaking, the stock has tacked on nearly 65% in the past year, and is within striking distance of its all-time high of $55.33 from last Friday.

  • Speaking of record highs, SKX just notched its own milestone this morning, rallying as high as $60.39 on a $10 price-target hike to $70 from Sterne Agee. At present, the shares are still up about 1.7% to trade at $59.77, bringing their year-to-date gain to 80.4%. Despite these encouraging technical developments, just three brokerage firms currently cover the shares, and the equity's 12-month price target rests at $58. This could pave the way for bullish initiations and upward price-target revisions, should Skechers USA Inc continue to climb the charts.

  • TRIP has added 2.1% around midday to hover near $104.11 -- bringing its year-to-date advance close to 26% -- thanks to a price-target revision to $100 from $88 at Wunderlich. Like FL and SKX, TripAdvisor Inc appears primed to receive additional upgrades and price-target hikes. After all, 55% of covering analysts give the shares a "hold" or worse rating, and the stock's 12-month price target of $104 is below current trading levels. Should these bullish brokerage notes materialize, they could add fuel to TRIP's fire.

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What to Expect From the VIX This Week

Volatility in the week leading up to Labor Day is historically low

by 8/25/2014 9:25 AM
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As Green Day once (sort of) sang when ruing their late-summer options decay, "Wake me up when September starts."

The market had a great week last week. The Nasdaq Composite (COMP) hit 14-year highs, and the S&P 500 (SPX) hit all-time highs, though it never quite hit that magical 2,000 mark. I'm fairly certain no product in history has ever topped with a "99" full of some sort, so, I'm guessing we nudge there (that's a big call there).

And great markets, of course, beget a lousy CBOE Volatility Index (VIX). It's back down to near 11.50, and theoretically that's high vs. realized volatility (RV). The 10-day RV in the SPX is down to 5.3 -- the lowest reading since early June. That means VIX has a premium of greater than 6, or greater than 200%, if you prefer.

I got asked the other day why I use the 10-day RV number, presumably as opposed to the 20-day. It's clearly "noisier," given it only incorporates half the data. That makes it prone to misleading ticks here and there, as one big outlier range day can keep it pumped up for a couple weeks.

I tend to use it because I feel it gives a better picture of the volatility that traders feel on the ground, and that, in turn, influences options pricing.

I'm not religious about it, though. If you look at the 20-day and find it serves your needs better, that's absolutely fine, too. I do believe that going too long-dated on RV isn't great. It will give you a longer-term picture of realized volatility, but so will looking at 10-day or 20-day RV over a longer period of time. But again, that's more personal preference than anything else.

One concept to keep in mind, though, is that you don't have to match up the duration of RV and implied volatility (IV) to make a comparison. That's mainly because they're different to begin with. IV prices forward and is measured in calendar days. RV looks backwards and is measured in trading days.

That's all a long-winded way of saying realized volatility has drifted quite a bit lately. And, it's not terribly likely it picks up in any major way this week, and it's even less likely that VIX does much. It's the dreaded pre-holiday week into the long weekend. It's time to both get in those last few barbecues and push those options volatility models ahead eight days to Sept. 2. Options with 30 calendar days to go may feel like they only have 25 or so days left, and will price accordingly. The fact that the market itself likely won't do much isn't helpful.

VIX futures and iPath S&P 500 VIX Short-Term Futures ETN (VXX) sometimes give us better pictures of volatility expectations on holiday weeks, so we'll pay some attention there over the next few days. For now, VXX hasn't hit an all-time low since July 3, so hey, that's progress! Of course it's only 0.75 away, so the Era of Good VXX Feeling may end soon.

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

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Analyst Downgrades: Aeropostale Inc, InterMune Inc, and Transocean LTD

Analysts downwardly revised their ratings on ARO, ITMN, and RIG

by 8/25/2014 9:14 AM
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Analysts are weighing in today on teen apparel retailer Aeropostale Inc (NYSE:ARO), biotech firm InterMune Inc (NASDAQ:ITMN), and offshore drilling name Transocean LTD (NYSE:RIG). Here's a quick roundup of today's bearish brokerage notes on ARO, ITMN, and RIG.

  • Aeropostale Inc (NYSE:ARO) has plummeted 61.3% year-to-date -- including last Friday's guidance-related 10% loss -- to rest at $3.52. As such, RBC and Susquehanna slashed their respective price targets on the retailer to $5 (from $6) and $6 (from $8). This is more of the same for ARO, which has received considerable negative attention on the Street. Specifically, all 21 analysts covering the shares have given them a "hold" or worse rating.

  • Having tacked on 265.2% this year, InterMune Inc (NASDAQ:ITMN) is already near annual-high territory at $53.80, and appears ready to notch a fresh record high out of the gate, with the shares up roughly 36% ahead of the bell. This price action comes on the heels of Roche's $8.3 billion agreement to buy ITMN, which was announced over the weekend. Meanwhile, Stifel cut its rating on the equity to "hold" from "buy" -- though, on the flip side, Baird, Leerink, and William Blair each upped their price targets to $74, in line with Roche's per-share purchase price. Taking a step back, six out of nine covering analysts have given ITMN a "strong buy" recommendation, versus two "holds" and one "sell" opinion.

  • Finally, technical laggard Transocean LTD (NYSE:RIG) got hit with a $3 price-target cut to $34 at Susquehanna, which also affirmed its "neutral" assessment of the shares. This represents more than 10% downside from the stock's current perch at $37.97, and territory not explored in a decade. Bearish sentiment is nothing new for RIG. In fact, 19% of the stock's float is sold short, which would take nearly 13 sessions to buy back, at the shares' average daily trading levels.

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U.S. stock futures are pointed higher this morning, thanks to some major merger-related headlines. In company news, today's stocks to watch include biotech name InterMune Inc (NASDAQ:ITMN), fast-food chain Burger King Worldwide Inc (NYSE:BKW), smartphone maker BlackBerry Ltd (NASDAQ:BBRY), and finance giant Goldman Sachs Group Inc (NYSE:GS).

  • Swiss drug company Roche Holding AG (ETR:RHO5) has launched an $8.3 billion bid to acquire InterMune Inc (NASDAQ:ITMN), sending shares of the latter company up more than 36% in pre-market action. The deal would broaden Roche's footprint in the respiratory niche, as ITMN's Esbriet -- a treatment for idiopathic pulmonary fibrosis -- has already received regulatory approval in Europe and Canada. (MarketWatch)

  • Burger King Worldwide Inc (NYSE:BKW) confirmed over the weekend that it's in merger talks with Canada's Tim Hortons Inc. (USA) (NYSE:THI). The combination would create the world's third-largest fast-food company, and would allow Burger King to complete a tax inversion by relocating its headquarters to Canada. BKW has bounced more than 13% ahead of the bell, while the U.S.-traded shares of THI are 16.5% higher. (USA Today)

  • BlackBerry Ltd (NASDAQ:BBRY) won a victory in its patent infringement lawsuit over Typo Products LLC's iPhone keyboards, when U.S. District Judge William Orrick denied Typo's motion for relief from a preliminary injunction barring the company from selling the product in question. BBRY is now free to pursue a contempt of court charge against Typo for violating the terms of the injunction. (Ars Technica)

  • Late Friday, Goldman Sachs Group Inc (NYSE:GS) said it has agreed to pay $3.15 billion to buy mortgage-backed securities (MBS) from Fannie Mae and Freddie Mac as part of a settlement with the Federal Housing Finance Agency. The purchase price values the MBS at $1.2 billion, in line with estimates. (Fortune)

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