3 Stocks That Could Struggle as the Euro Gains Ground

Could a strong euro hurt CBI, ALKS, and JAZZ?

Dec 3, 2015 at 3:17 PM
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The euro is flirting with four-week highs against the greenback, in reaction to the European Central Bank's (ECB) decision to lower its deposit rate. What's more, a higher euro could impact European-based companies with a relatively high level of U.S. sales. Among them: Netherlands-based energy infrastructure concern Chicago Bridge & Iron Company N.V. (NYSE:CBI), as well as Dublin-based biotechs Alkermes Plc (NASDAQ:ALKS) and Jazz Pharmaceuticals plc - Ordinary Shares (NASDAQ:JAZZ). Let's take a look at the technical and sentiment pictures for CBI, ALKS, and JAZZ, which all generated at least half of their 2014 sales from North America, per FactSet.

CBI is down 1% at $41.26, putting it 1.7% in the red year-to-date. The shares have been struggling since hitting an annual high of $59.45 in mid-May, with recent rebound attempts stymied by their 20-week moving average, and pullbacks contained in the $38-$40 neighborhood.

While short interest has been on the decline, more than 16% of the stock's float remains dedicated to short interest. At CBI's average pace of trading, it would take nearly nine sessions to repurchase these pessimistic positions.

On the flip side, near-term option traders are more call-heavy than usual. The equity's Schaeffer's put/call open interest ratio (SOIR) of 1.33 stands higher than just 22% of all other readings from the past year. However, considering the SOIR encompasses options that expire within three months -- which includes January-dated options that were once LEAPS -- and since peak call open interest in that series rests at the deep out-of-the-money January 2016 65 strike, it's possible that some of those calls were purchased by shorts looking for a hedge.

Whatever the motive, now is an opportune time to scoop up Chicago Bridge & Iron Company N.V.'s (NYSE:CBI) near-term options. The equity's Schaeffer's Volatility Index (SVI) of 36% sits 5 percentage points from an annual low, pointing to lower-than-usual volatility expectations. Likewise, the stock's Schaeffer's Volatility Scorecard (SVS) of 82 indicates that CBI has tended to make outsized moves on the charts during the past year, relative to what the options market has priced in.

ALKS is faring even worse, down 4.2% at $71.21. Still, the shares boast a year-to-date gain of 21.4%, and just touched a record high of $75.99 on Nov. 30.

As with CBI, short interest on ALKS has depleted in recent months, but still accounts for a healthy 5.4 million shares -- representing nearly seven sessions' worth of pent-up buying demand, at the stock's average daily trading volume. 

Meanwhile, five out of eight analysts offer up "strong buy" opinions, and option traders have been buying to open calls over puts at a rapid-fire rate. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 54.83 stands higher than 96% of all other readings from the past 12 months.

The out-of-the-money January 2016 85-strike call has seen the biggest open interest increase during the past two weeks, with 1,000 contracts added. Buyers of the calls could've been shorts looking to protect their bearish bets in the event of a rally to new heights.

As with CBI, Alkermes Plc's (NASDAQ:ALKS) near-term options are attractively priced, historically speaking. The stock's SVI sits at 42%, in the 10th percentile of its annual range.

Finally, JAZZ has been muscling higher since hitting a near two-year low of $117.26 in October, but recently ran into a wall at its 80-day moving average. Today, the shares are off 3.6% at $140.40, bringing their year-to-date deficit to 14.3%.

Against this backdrop, it's not too surprising to find option players have been initiating bearish bets at a faster-than-usual pace. The stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.84 sits higher than four out of five readings from the past year. As such, the stock's SOIR rests at 1.24 -- in the 90th percentile of its annual range.

The security's SVS comes in at a relatively low 12, which doesn't bode well for option buyers. Simply put, JAZZ has made meager moves on the charts during the past 52 weeks, compared to what the options market has priced in.

Outside of the options pits, Jazz Pharmaceuticals plc - Ordinary Shares (NASDAQ:JAZZ) could be vulnerable to an analyst backlash. Despite the security's technical struggles, 10 out of 12 brokerage firms offer up "strong buy" endorsements, leaving the door wide open for potential downgrades.

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