Earnings Season Highlights

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A collection of noteworthy post-earnings reactions
Published on Dec 12, 2018 at 9:16 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Buzz Stocks
  • Analyst Update

Perhaps no stock has fallen further from grace during the broad market sell-off than Nvidia Corporation (NASDAQ:NVDA). Today, the chip stock is down 0.6% in electronic trading, after RBC trimmed its price target to $230 from $260, but even that still represents a 55% premium to yesterday's closing perch of $148.19. Also adding pressure is a report out of Bloomberg yesterday that SoftBank could soon sell its stake in the company.

Nvidia stock sat at a record high of $292.76 on Oct. 2. Since then, a number of bear gaps have dragged NVDA lower to shed more than half of its value, form a death cross, and hit an annual low of $133.31 on Nov. 20. And even a subsequent rally from that bottom was turned away by the shares' 20-day moving average. 

Analysts for the most part remain committed to the equity. Of the 26 brokerages covering NVDA, 16 rate it a "buy" or better, with only one "sell" on the books. What's more, the stock's consensus 12-month price target of $228.88 is right in line with RBC's bear note today, but still a ways away from its current levels.

In the options pits, the security's Schaeffer's put/call open interest ratio (SOIR) comes in at 0.76, which ranks in the lowest annual percentile. In other words, options traders seem relatively upbeat amid this steady downtrend, with data showing a higher-than-normal preference for near-term calls over puts.

Published on Dec 14, 2018 at 9:50 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Stock Market News
  • Buzz Stocks

Weed stock Tilray Inc (NASDAQ:TLRY) has been relatively quiet recently, at least compared to the noise it created back in September when it traded in a 150-point range in a single session, eventually topping out at an even $300. Since then, the shares have been sliding lower, yesterday notching their lowest close since August. It's been over two weeks since TLRY stock settled atop its 10-day moving average, and it's down again today following the company's latest cannabis investment.

At last check, the equity was down 3.2% at $73.13, after the company announced it's investing in Quebec's ROSE Lifescience. Technically, TLRY could be due for a bounce, since its 14-day Relative Strength Index (RSI) was teetering right on the edge of oversold territory coming into today, checking in at 30.

Options traders have remained committed to their call-buying ways in the meantime. More specifically, roughly 17,000 calls were bought to open during the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), compared to 14,271 puts.

But while calls have continued to have the edge across these exchanges, puts dominate the top of Tilray's biggest open positions list. The most popular TLRY option overall, based on total open interest, is the March 20 put, where data hints at mostly buy-to-open activity, meaning some traders are betting on a huge slide in TLRY shares.

This deep out-of-the-money put is followed by the December 50 put, and then the January 2019 60-strike put. The former option has seen mostly buy-to-open action, as well, while the latter has seen sell-to-open activity. It's probably also worth pointing out the brow-raising open interest at the December 200 call, where 4,325 contracts are open.

Published on Dec 14, 2018 at 10:02 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Analyst Update

The shares of Regeneron Pharmaceuticals Inc (NASDAQ:REGN) are up 0.9% to trade at $381.87, after Goldman Sachs upgraded its rating on the stock to "buy" from "neutral," adding it to its Conviction Buy list in the process. The covering analyst is bullish on the company's pipeline of products.

The upbeat price action today could help Regeneron stock close out a third straight weekly win and distance itself above its year-to-date breakeven point around $376. REGN snagged an annual high of $416.49 back in late August, but has struggled since, gapping lower in October. Nevertheless the shares found support near the $330 level.

There is ample room for analysts to come aboard, should REGN keep climbing. Of the 17 brokerages covering the drug stock, 12 rate it a tepid "hold." At the same time, shorts have been heading for the hills, with short interest falling by 19.8% in the last two reporting periods to 2.10 million shares, the lowest since February. This still represents 3.5 times the average daily trading volume, though.

Options traders also are upbeat, albeit limited absolute volume. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 2,977 calls in the last 10 sessions, compared to just 484 puts. The resultant call/put volume ratio of 6.15 ranks in the 100th annual percentile, meaning calls have been bought to open over puts at a much quicker-than-usual clip.

Published on Dec 14, 2018 at 10:17 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity
  • Buzz Stocks

It's been a volatile week for XPO Logistics Inc (NYSE:XPO), which plunged nearly 10% on Wednesday after the company cut its 2019 adjusted EBITDA forecast, and dropped more than 26% yesterday -- hitting a two-year low of $41.05 along the way -- in the wake of a "strong sell" rating and scathing note from Spruce Capital. Today, XPO stock is up 5.8% at $47.10, after the expedited shipping specialist responded to the short seller, and unveiled a new buyback program.

Specifically, XPO Logistics issued a statement that said Spruce Capital's note -- which called the the stock "uninvestible and a potential zero" -- is "intentionally misleading, with significant inaccuracies." Plus, the freight firm unveiled a $1 billion share repurchase program.

Looking closer at the charts, XPO's long-term trajectory has been to the downside, with the shares off nearly 59% from their Sept. 26 record high of $116.26. The shares are now bracing for their worst quarter on record -- down 59% so far -- and testing the $45 region, which served as both support and resistance in late 2016 and early 2017.

The volatility has sparked a rush of activity in XPO's options pits this morning, with 6,865 calls and 3,776 puts traded so far -- seven times what's typically seen at this point in the day. Call writers may be liquidating their positions at the December 50 strike, while new positions are being initiated at the December 42.50 call and January 2019 47-strike put.

Meanwhile, short-term options are still pricing in sky-high volatility expectations. After topping out at a 52-week peak of 108.8% yesterday, XPO's 30-day at-the-money implied volatility was last seen at 81.6% -- in the 99th annual percentile.

Published on Dec 14, 2018 at 10:40 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Quantitative Analysis
  • Technical Analysis

Intercept Pharmaceuticals Inc (NASDAQ:ICPT) stock has handily outperformed the broader equities market in 2018, up 83% year-to-date. However, the shares of ICPT recently flashed what's been a historical sell signal, suggesting now may be time for bulls to take profits -- or perhaps pick up some short-term options insurance.

Specifically, the drug stock is back within one standard deviation of its 160-week moving average, after a lengthy stretch below this trendline. There have been just three signals of this kind in the past, after which ICPT stock was lower three months later each time, averaging a loss of more than 13%, per data from Schaeffer's Senior Quantitative Analyst Rocky White. From the equity's current perch around $106.12, a similar pullback would put ICPT around $92.32.

Further, after more than doubling off its Feb. 9 low of $51.05, the pharmaceuticals stock is staring up at a familiar roadblock in the $120-$130 neighborhood. This area has acted as a ceiling for ICPT since late 2016, and the December 120 strike is home to peak call open interest in the front-month series, which could translate into an added options-related speed bump in the near term.

ICPT stock chart dec 14

Should the stock once again backpedal, several analysts could be caught off-guard. Intercept Pharmaceuticals boasts eight "strong buys" and one "buy" rating, compared to three lukewarm "holds" and just one "sell."

ICPT shareholders concerned about a short-term pullback could consider protective puts on the equity. The January 100 put, for instance, is currently asked at $7.30. Buying the puts to open would allow the shareholders to sell ICPT at $100 -- and likely lock in profits -- should the security take a tumble beneath the century mark before the options expire on Friday, Jan. 18.

Published on Dec 14, 2018 at 11:01 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Strategies and Concepts

When selecting the right option to buy, a trader has several choices to make. One is whether to purchase an in-the-money (ITM) or out-of-the-money (OTM) option. While the goal for "vanilla" buyers is to have the option be in the money at expiration, the selected option depends on the amount the trader wants to spend and their risk tolerance, as well as their specific expectations for the underlying stock. 

Understanding In the Money vs. Out of the Money

Before delving into the pros and cons of each, let's look at what it means to be in or out of the money. A call is ITM when the underlying stock is trading above the strike price. Conversely it is OTM when the underlying stock is trading below the strike price. Let's say a trader purchases a February 50 call on Stock XYZ. If the underlying shares are trading at $60, that call is ITM. If the stock is trading at $40, that call is OTM.

The same holds true for put options, but in reverse. So, if shares of XYZ are trading at $40, the February 50 put will be ITM. Conversely, a February 30 put would be OTM, if XYZ is trading at $40. 

Why Buy ITM Options?

Like all trades, in-the-money options have risks and rewards. These options are generally viewed as the more "conservative" choice, as they have higher deltas -- the measure of how much an options price will change based on the movement of an underlying stock -- meaning there's a better chance for the option to be in-the-money at the time of expiration. 

Buying ITM options also lessens the impact of time decay, as they carry both intrinsic and time value. This means that even the if underlying value of a stock remains static through a contract's expiration, the trader can sell to close an ITM option and still collect the remaining intrinsic value, thus avoiding a total loss on the trade.

In-the-money contracts, however, are more expensive to enter than their out-of-the-money counterparts. And while the payoffs on an in-the-money trade can be high, the trader could ultimately suffer a bigger loss if the underlying stock moves the wrong way. 

Pros and Cons of OTM Options

While out-of-the-money options are typically viewed as the more "aggressive" of the two, there are potential upsides to purchasing these types of contracts. For one, the cost to buy an OTM option is lower than the cost to buy an ITM option. This is because at the time of the purchase, OTM contracts have no intrinsic value. So, while the potential for a 100% loss is greater, the cost (and risk) to enter the trade is lower.

In the same vein, buying an out-of-the-money contract can give the trader serious leverage if the underlying stock moves in his favor, since the initial cost is relatively low. While all options offer the benefit of leverage, the less money you spend, the more you stand to gain from this feature.

On the other hand, out-of-the-money contracts have lower deltas, so the chances of the trade expiring in the money is slimmer. These contracts are more susceptible to time decay, too. This means that if the underlying stock does not see a dramatic swing in the trader's favor, a 100% loss is likely to occur. 

Which Option Should I Buy?

In conclusion, the choice between in-the-money and out-of-the-money options comes down to a matter of preference. Each alternative offers pros and cons, so it's up to you to decide which features are most appealing.

Plus, bear in mind that your choice may change with each trading opportunity. When you're forecasting a quick, drastic rise in the underlying stock, it might make more sense to buy out-of-the-money options. Conversely, if you anticipate a relatively modest rise over a longer time frame, you may prefer to trade in-the-money options.

Published on Dec 14, 2018 at 11:33 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Buzz Stocks

Shares of Ford Motor Co. (NYSE:F) are up 1.5% at $8.62 in early trading -- bucking the broad-market trend lower -- after China confirmed that it would postpone additional tariffs on U.S.-made cars for another three months. Ford Motor's Joe Hinrichs, president of the Americas unit, said, "We are very encouraged by China's announcement today."

Ford stock has been in a steady decline since its June highs, and is down about 31% this year. F hit an eight-year low of $8.17 on Oct. 24, and subsequent rebound attempts have stalled in the $9.50-$9.90 area, now home to the equity's 100-day moving average .

Analysts have been cautious about the stock, with eight of 11 doling out a tepid "hold" rating. Likewise, its consensus 12-month price target of $9.99 represents just a 15.5% premium to F's current levels. Again, however, the shares would need to topple aforementioned resistance in order to break into double-digit territory.

Amid concerns about the U.S.-China trade war, option bears have been swarming the stock. 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 1.59 is in the 98th percentile of its annual range. This indicates traders have bought to open Ford puts over calls at a much faster-than-usual clip on the past two weeks. Echoing that, Ford's Schaeffer's put/call open interest ratio (SOIR) of 0.81 sits in just the 89th percentile of its annual range, indicating that near-term traders have rarely been more put-biased in the past 12 months. 

 

 

Published on Dec 13, 2018 at 12:54 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Quantitative Analysis
  • Technical Analysis
  • Indexes and ETFs
  • Editor's Pick

With U.S. stocks wilting in the fourth quarter, the S&P 500 Index (SPX) recently made a "death cross," as many financial media outlets have mentioned. Specifically, the broad-market barometer's 50-day moving average just edged south of the 200-day moving average, typically viewed as a bearish technical indicator. While we recently took a look at individual stocks making death crosses, below is a look at what Wall Street might expect if this ominous-sounding chart pattern comes to fruition.

There have been 34 death crosses since 1950, per Schaeffer's Senior Quantitative Analyst Rocky White. On the surface, it's clear why the chart pattern is typically considered a bearish signal. A month after death crosses, the S&P was down 0.89%, on average, and higher less than half the time. That's compared to an average anytime one-month gain of 0.71%, with a win rate of 61.2%.

Six and 12 months after a death cross, the index averaged weaker-than-usual returns of 3.69% and 4.52%, respectively. Plus, six months out, the SPX was higher just over half the time, compared to 70.2% anytime.

"Golden crosses" -- when the 50-day moving average moves back above the 200-day -- meanwhile, have been bullish indicators. The S&P's average returns after these signals have been higher than usual, and the index has been positive a year later 82.4% of the time.

spx after death and golden crosses 1950

However, when zooming in, you'll find that the most recent death crosses have not been proverbial death sentences for the S&P, though they did mark short-term bottoms. The last time the SPX made a death cross was in January 2016, shortly before the February 2016 doldrums. Prior to that, you'd have to go back to August 2015, just after the "flash crash," which was the first signal since August 2011, when stocks fell on a U.S. credit rating downgrade by Standard & Poor's.

SPX chart death crosses

As you can see in the chart below, five of the last seven death crosses have preceded double-digit percentage gains for the S&P over the subsequent six months. And six of the last seven death crosses preceded positive one-year returns. The exception was the December 2007 death cross, which occurred around the time of the financial crisis.

spx death crosses since 1990

In conclusion, if recent history is any indicator, the 2018 death cross could mean the S&P is flirting with a near-term bottom. As Schaeffer's Senior V.P. of Research Todd Salamone recently noted, traders should watch the SPX's trajectory around the 2,600 and 2,800 levels for clues to which way Wall Street's pendulum might ultimately swing.

Published on Dec 13, 2018 at 12:55 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity
  • Analyst Update

Citigroup upgraded Marvell Technology Group Ltd. (NASDAQ:MRVL) to "buy" from "neutral," and raised its price target to $19 from $17.30 -- a nearly 24% premium to last night's close. The brokerage firm said Wall Street is discounting the chipmaker's impressive networking sales, and the short-term risk-reward profile looks attractive following MRLV's 2018 struggles.

At last check, MRVL stock is up 1.8% at $15.62, paring its monthly deficit to 3.4%. Longer term, the tech shares are down 38% from their early March 11-year peak of $25.18, with their 30-day moving average applying steady pressure since a mid-August bear gap. Additionally, the security tapped a 15-month low of $14.69 on Nov. 20.

mrvl stock daily price chart on dec 13

Nevertheless, the overwhelming majority of covering analysts maintain a "buy" or better rating on MRVL stock, with not a single "sell" to be found. Plus, the average 12-month price target sits all the way up at $23.72 -- in territory not explored in nine months.

Elsewhere, short sellers have been cashing in on the tech stock's slide, with short interest down 18.6% in the two most recent reporting periods to 22.85 million shares. These bearish bets still represent more than 5% of MRVL stock's available float, or nearly three times the average daily pace of trading.

Options traders, on the other hand, have been positioning for more losses. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), MRVL's 10-day put/call volume ratio of 1.01 ranks in the 96th annual percentile, meaning puts have been bought to open over calls at a quicker-than-usual clip.

Today, puts have a slight lead over calls, with 2,354 of the former and 2,148 of the latter on the tape at last check, roughly 1.2 times what's typically seen at this point. The weekly 12/14 15.50-strike puts are most active, though it looks like speculators may be selling to open positions here, setting a floor for Marvell Technology stock through tomorrow's close.

Published on Dec 13, 2018 at 1:33 PM
Updated on Mar 19, 2021 at 7:15 AM
  • The Week Ahead

Next week, the highly anticipated December Fed meeting will make headlines, with the central bank widely expected to boost rates again. Traders will undoubtedly dissect the Fed's policy statement and the post-meeting press conference with Fed Chair Jerome Powell for clues to the future pace of rate hikes. In addition, Wall Street will weigh the latest gross domestic product (GDP) data, and keep an eye on Washington, D.C., after President Donald Trump recently threatened a partial government shutdown over the proposed border wall with Mexico.  Plus, blue chips Nike (NKE) and Walgreens Boots Alliance (WBA) will lead the train of earnings trickling in, with BlackBerry (BB), FedEx (FDX), and Micron Technology (MU) also set to report. 

Below is a brief list of some key market events scheduled for the upcoming week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates. 

A quiet Monday, Dec. 17, will start the busy week with the Empire State manufacturing survey, the housing market index, and Treasury International Capital (TIC) data. Red Hat (RHT) and Steelcase (SCS) report earnings.

The two-day Federal Open Market Committee (FOMC) meeting starts Tuesday, Dec. 18, and traders will digest housing starts. Earnings reports are expected from FedEx (FDX), Micron Technology (MU), Darden Restaurants (DRI), and Navistar (NAV). 

Wednesday, Dec. 19, will bring the much anticipated FOMC policy statement, in which the Fed is expected to hike interest rates for the final time this year. Traders can also look forward to the Fed forecast, as well as comments from Fed Chair Jerome Powell during the afternoon press conference. 

Traders will see data on existing home sales and the Energy Information Administration's (EIA) weekly crude inventories report. Cintas (CTAS), General Mills (GIS), Paychex (PAYX), and Winnebago (WGO) will all enter the earnings confessional.

It will be an active Thursday, Dec. 20, with blue chips Nike (NKE) and Walgreens Boots Alliance (WBA) throwing their hats into the earnings ring, as well as Accenture (ACN), BlackBerry (BB), Conagra (CAG), and Sanderson Farms (SAFM). The Fed balance sheet, weekly jobless claims, and Philadelphia Fed business outlook survey are also slated for Thursday. 

Data on durable goods, personal income and outlays, and consumer sentiment will all roll out on quadruple-witching Friday, Dec. 21, as well as the latest reading on third-quarter GDP. There are no earnings of note scheduled. On Capitol Hill, meanwhile, the federal government could face a partial shutdown at midnight, if a budget deal can't be reached.

Published on Dec 13, 2018 at 2:14 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity
  • Analyst Update

The shares of Delta Air Lines, Inc. (NYSE:DAL) are down 4.7% to trade at $53.55, after the airliner issued a weaker-than-expected revenue outlook for 2019. At the company's investor day, Delta predicted a 4% to 6% rise in revenue -- weaker than analysts' expectations -- citing concerns about global economic growth. In response to the pullback today, options bears are coming out in droves. 

At last check, over 18,000 put options have changed hands so far today, three times what's typically seen at this point and nearly triple the average daily volume. The December 47 put is seeing notable attention, with bears likely buying to open the puts to bet on a steeper short-term slide for DAL. Meanwhile, roughly 31,000 calls have crossed the tape -- also three times the norm -- the majority of which is attributable to big blocks of more than 10,000 January 2019 57.50- and 60-strike calls exchanged, possibly as part of a spread.

On the charts, Delta stock nabbed a record high of $61.31 back on Nov. 30, but has pulled back since then, shedding 11.8% in December thus far. Today's drop takes DAL back below its year-to-date breakeven level of $56, and has the shares testing their 320-day moving average for the first time since late October.

Daily Stock Chart DAL

Despite the uptick in puts today, calls have been the options of choice in recent days. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows 12,395 calls were bought to open in the last 10 days, compared to just 5,656 puts.

However, Delta stock's Schaeffer's put/call open interest ratio (SOIR) of 0.83 sits in the 80th percentile of its annual range. This indicates that while call open interest still outnumbers put open interest on an absolute basis, looking at options expiring in the next three months, short-term traders are more put-heavy than usual right now.

Elsewhere, analysts remain steadfast in their support for the airline name. All 13 of the brokerages covering DAL rate it a "buy" or better, and its average 12-month price target sits all the way up at $69.79, a 30% premium from its current perch.
Published on Dec 13, 2018 at 2:49 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Stocks On the Move

U.S. stocks aren't making too big of a move in either direction today, with the Dow last seen slightly lower. As for individual stocks to watch, traders should check out the news around beer maker Boston Beer Company Inc (NYSE:SAM), supply chain solutions provider XPO Logistics Inc (NYSE:XPO), and pharma name Alkermes Plc (NASDAQ:ALKS). Continue reading for more insight on the shares of SAM, XPO, and ALKS.

UBS Says Sell SAM Stock

SAM shares are under pressure today, last seen off 3% at $265.75, after UBS began coverage with a "sell" rating and $228 price target. The stock has found familiar support at the $260 level, though, which is right near its 200-day moving average. Moreover, Boston Beer is up 39% in 2018.

Most other analysts share UBS' skeptical outlook, however, with six of seven handing out "hold" or worse recommendations. In a similar vein, the average one-year price target from this bunch offers little upside, coming in at $276.

Scathing Spruce Capital Note Sinks XPO Shares

XPO stock is collapsing today, sliding 25.8% to trade at $44.73, fresh off an annual low of $44.62. The sell-off is a continuation of yesterday's drop, sparked by the company's lowered full-year outlook.

On top of this, analysts have weighed in bearishly since yesterday's close. For instance, Spruce Capital initiated coverage with a "strong sell," saying XPO is "uninvestible and a potential zero" in a scathing note.

Elsewhere, Jefferies lowered its still-high price target to $120 from $145, adding that it believes macro issues have caused the company to underperform its peers. Credit Suisse also cut its price target down to $92, while SunTrust Robinson initiated coverage with a "buy" rating. Looking more broadly, 14 of 15 analysts already say to buy the equity, even though it's declined 60% in the past three months. 

ALKS Stock Downgraded on Pipeline Disappointment

ALKS is trading down 4.6% at $33.86, touching a two-year low of $32.37, after Credit Suisse downgraded the shares to "underperform" from "outperform" and dropped its price target to $30 from $47 -- a Street-low -- citing a "disappointing" drug pipeline. The stock has been grinding lower for months, and is sitting on a year-to-date deficit of 38.2%.

Amid the slide to new lows, Alkermes short sellers have been cashing out. Short interest declined by 14.5% in the past two reporting periods, though these bears still control six days' worth of buying power, based on the average daily trading volume.

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