Earnings Season Highlights

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A collection of noteworthy post-earnings reactions
Published on Dec 20, 2018 at 3:06 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Bernie's Content

The financials, "fundamentals," and technicals for AT&T (NYSE:T) come down to -- Good: 6.6% dividend yield. Bad: Crushing $185 billion debt load, shares that peaked (without subsequently looking back) in 1999, and a business that has piled one costly acquisition on top of another and still cannot grow. Ugly: The accompanying chart (which may just be the ugliest we've ever encountered for a company with a market cap north of $200 billion... or $100 billion, for that matter).

And yet... Three analyst upgrades since October? And message board after message board packed with everyday investors so enamored of this "value" name that they buy every pullback? (The "message board topper"? In our view, the hopelessly smitten fellow who referred to T shares -- in 100% unironic fashion -- as "a monster"!)

Please check out the breadth and depth of the overhead price resistance as displayed on the accompanying chart (and labeled "BDR"). And just to ice the cake on the limited upside, we have what has been an impenetrable 200-day moving average atop those levels.

Our recommended put option is available on the cheap, despite the high level of overall market volatility. In fact, our targeted 100% profit over the recommended holding period could be achieved on a decline by T to just north of $27 -- at which point the shares will still be clinging to a $200 billion market valuation.

t daily sm 1216


Subscribers to Schaeffer's Weekend Player options recommendation service received this T commentary on Sunday, December 16, along with a detailed options trade recommendation -- including complete entry and exit parameters -- straight from Bernie's trading desk. Learn more about why Weekend Player is one of our most popular options trading services.
Published on Dec 20, 2018 at 10:11 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Buzz Stocks

The shares of Tilray Inc (NASDAQ:TLRY) are up 7.4% to trade at $76.25, after the company announced a $100 million joint venture with Anheuser Busch Inbev NV (NYSE:BUD) to research THC- and cannabinoid-infused beverages in Canada. The country, which legalized recreational pot in October, is expected to approve weed-based drinks and edibles in October 2019. It's just the latest marijuana partnership for Tilray, which announced a medical marijuana deal with pharma name Novartis AG (NYSE:NVS) earlier this week.

TLRY stock skyrocketed to an all-time high of $300 in mid-September, as weed stocks rallied ahead of the aforementioned Oct. 17 legalization date in Canada. However, the momentum didn't last, with the shares ultimately backpedaling beneath support in the $95-$100 region -- also a 61.8% Fibonacci retracement of TLRY's opening-day close of $22.39 and Sept. 19 all-time closing high of $214.06.

Amid the stock's slide, it's no surprise to find that options buyers have preferred bearish bets lately. 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 1.23 indicates that traders have bought to open more Tilray puts than calls in the past two weeks.

The deep in-the-money January 2019 125-strike put saw the biggest increase in open interest, with nearly 2,400 contracts added during this time frame. Data suggests a healthy portion of the puts were, in fact, bought to open. By purchasing the puts, the traders expect TLRY to extend its recent retreat beneath the $125 level through the next several weeks.

Published on Dec 20, 2018 at 10:17 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Analyst Update

Despite the huge declines in their share prices, many analysts have stuck behind FAANG stocks. Just this morning, Morgan Stanley named Facebook, Inc. (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc (NASDAQ:GOOGL) its top picks from the internet space for 2019. The brokerage firm suggested that digital advertising won't be negatively effected by a slowdown in the broader U.S. economy, saying specifically, "Despite macro clouds, we remain confident in strong U.S. ad outlook."

For FB stock in particular, MS lifted its price target to $175 from $170. The shares struggled yesterday amid yet another round of bad news, but are marginally higher today -- up 0.9% to trade at $134.51. Even with the small increase, the security is dangerously close to its 52-week low of $126.85 from Nov. 20.

AMZN is managing to trade higher so far today, last seen up 0.6% at $1,503.33. The $1,500 region has been a short-term technical floor for the stock since late October, helping the equity maintain a roughly 28% lead in 2018. Still, some options traders earlier this week were betting on major losses for the e-commerce concern.

GOOGL so far is up 0.3% to trade at $1,038.50, still holding near the bottom of the $1,000-$1,120 area that it's chopped inside since late October. This puts the search giant on pace to close 2018 just below breakeven, with the 200-day moving average putting a firm lid on a breakout attempt earlier this month.

 

Published on Dec 20, 2018 at 10:19 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Buzz Stocks

Shares of Walgreens Boots Alliance Inc (NASDAQ: WBA) are down 3.3% to trade at $70.60 this morning, despite reporting quarterly adjusted earnings that beat analysts' expectations. Traders are apparently reacting to a steeper-than-expected drop in same-store sales, and the pharmacy giant announced plans to cut more than $1 billion in costs over the next three years.

The month of December has been brutal for the blue chip, with WBA down 16.1% so far -- pacing for its worst month since June 2010. The equity is on pace for a sixth straight loss, and has dipped below its year-to-date breakeven of $72.62 today.  Now, the shares are testing their footing atop the 160-day moving average. 

Analysts have reservations about the pharmacy giant. Only four analysts give WBA a "buy" or better rating, while 12 slapped it with a tepid "hold." Goldman Sachs, meanwhile, recently downgraded the Dow stock to "sell." Meanwhile, the consensus 12-month price target of $78.57 represents just a 7.2% premium to current levels. 

Traders are jumping on the bearish bandwagon, too. Short interest is up 8.6% in the past two reporting periods, and WBA's Schaeffer's put/call open interest ratio (SOIR) of 1.12 sits in the 99th percentile of its annual range -- indicating that short term options players have rarely been more put-heavy in the past year. 

 

 

Published on Dec 19, 2018 at 12:30 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Quantitative Analysis

Despite today's gains, the healthcare sector has been under pressure lately amid the recent Obamacare court ruling. If history is any guide though, there could be clear skies ahead for blue chip Merck & Co., Inc. (NYSE:MRK) and cardiovascular disease specialist Amarin Corporation (NASDAQ:AMRN), both of which are flashing the same bullish signal.

MRK Could Test Multi-Year Highs to Start 2019

Merck stock, at last check, was trading up 0.6% at $74.81, and is now within one standard deviation of its 80-day moving average after a lengthy period above it. Over the past three years, there have been six similar encounters with this trendline, after which MRK went on to average a one-month gain of 5.34% and was higher 83% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

A move of similar proportions would put Merck stock back near $78.80, just a chip-shot from its 17-year high of $80.19 nabbed on Dec. 4. Overall, MRK boasts a 32% gain in 2018, carving out a channel of higher highs since an early April bottom near $53. During this stretch, and even as the broader stock market has swooned, the Dow name has rattled off nine straight monthly wins. 

Daily Stock Chart MRK

In the options pits, the security's Schaeffer's put/call open interest ratio (SOIR) comes in at 1.61, which ranks 1 percentage point from an annual high. In other words, options traders seem relatively pessimistic, with data showing a much higher-than-normal preference for near-term puts over calls. Should MRK once again bounce, an exodus of option bears could be beneficial.

AMRN Set to Snap Skid, Bounce Higher

Looking at Amarin, the stock is also within one standard deviation of its 80-day moving average. Over the past few years, there have been four similar dips to this moving average, after which AMRN went on to average a one-month gain of 11.93%, and was higher 75% of the time, per data from White.

Amarin stock, at last check, was up 3.5% at $15.41, on track to snap a four-day losing streak. A bounce of similar magnitude would have the drugmaker back above $17.20 to start 2019. AMRN has nearly tripled year-to-date, sparked by a late-September bull gap following upbeat data for its heart disease treatment.

Daily Stock Chart AMRN

What's more, traders looking to speculate on AMRN's near-term trajectory should consider options. The stock's Schaeffer's Volatility Index (SVI) of 92% is in just the 8th percentile of its annual range, suggesting short-term options are pricing in relatively low volatility expectations for the shares. In other words, Amarin near-term options are attractively priced at the moment.

Published on Dec 19, 2018 at 1:25 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Earnings Preview

It's been a volatile stretch for Nike Inc (NYSE:NKE) stock, per its 60-day historical volatility of 30.4% -- in the 100th annual percentile. The options market is expecting even more volatility for NKE shares after the athletic apparel retailer reports earnings after the market closes tomorrow, Dec. 20.

Specifically, Trade-Alert places the implied earnings deviation for Nike at 10.3% -- more than double the 4.5% next-day move the stock has averaged over the past two years. Those earnings reactions have been equally positive and negative in the last eight quarters, with just post-earnings performances (11% one-day gains in June 2017 and 2018) large enough to exceed the move the options market is pricing in this time around.

At least some options traders are betting on NKE's post-earnings price action to resolve to the upside. The December 70 call has seen the biggest increase in open interest over the last two weeks, and data suggests a number of these options were bought to open on Monday. If this is the case, the call buyers expect Nike stock to break out above $72.50 by expiration at the close this Friday, Dec. 21.

Meanwhile, short-term volatility expectations have ramped up ahead of earnings, as evidenced by the stock's 30-day at-the-money implied volatility (IV) of 38.9% -- in the 99th annual percentile. Plus, the 30-day IV skew of 16.5% registers in the 89th percentile of its 12-month range, indicating short-term call premiums have rarely been cheaper, relative to puts.

Outside of the options pits, short sellers have been increasing their exposure to Nike stock. Short interest jumped 14.7% in the most recent reporting period, but the 11.59 million shares currently sold short account for just 0.9% of the equity's available float.

Looking at the charts, Nike shares topped out at a record high of $86.04 on Sept. 21, before pulling back dramatically in October alongside the broader equities market. And while the Dow stock has recently found a foothold near the $70 mark -- a former layer of resistance that coincides with its +10% year-to-date return -- its 50-day and 200-day moving averages just formed a death cross for the first time since October 2017. Today, NKE stock is down 0.1% to trade at $71.05.

 nike stock daily price chart on dec 19

Published on Dec 19, 2018 at 1:52 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity

The shares of Allergan plc (NYSE:AGN) are getting crushed today, after the company pulled its textured breast implants from the market in Europe. Late yesterday, France's regulatory body issued a recall request for the implants, saying they've been linked to a rare type of cancer. There is no evidence that women who have the implants are facing immediate health risks, and the textured implants will remain available in the U.S., Allergan said. Against this backdrop, AGN shares are down 7.3% to trade at $135.99 -- and earlier touched a new low -- yet at least one options trader is paying big bucks to bet on a first-quarter recovery.

Allergan stock fell as low as $135.51 in intraday trading, into territory not charted since late 2013. The security is on pace for its worst session since Oct. 30, when AGN dropped after earnings and when the company's CEO expressed disappointment in early buyer interest for its women's health and infectious diseases units. From a longer-term perspective, the healthcare concern has been in a channel of lower highs and lows since peaking in mid-2015.

AGN stock chart dec 19

AGN options are flying off the shelves today, with about 12,000 calls and an equal number of puts traded -- six times the average intraday volume. In fact, overall options volume is pacing for an annual high.

Of note, the March 150 call is far and away the most active option so far today, with roughly 5,900 contracts exchanged. Most of that activity is attributable to a sweep of 4,000 calls that appear to have been bought to open for $5.20 apiece this morning. If it's a "vanilla" buyer, the trader paid a cool $2.08 million ($5.20 x 100 shares per contract x 4K contracts), and the calls will begin to profit if AGN shares retake $155.20 (strike plus premium paid) by the time March options expire.

Today's appetite for bullish bets runs counter to the recent trend seen on the major options exchanges, though. At 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 0.84 is in the 90th percentile of its annual range. While the ratio tells us that long calls have outnumbered puts on an absolute basis, the high percentile indicates a much healthier-than-usual appetite for bearish bets of late.
Published on Dec 19, 2018 at 2:04 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity

The shares of General Electric Company (NYSE:GE) are trading up 7.1% today at $7.79, after Bloomberg reported the company has filed confidentially for an initial public offering (IPO) of its healthcare unit. Plus, GE stock was upgraded for the second time in the past week -- with Vertical Research Partners lifting its rating to "buy" -- which is only stoking the bullish flames, and has the equity on track for its highest close in nearly a month.

Against this backdrop, GE options are flying off the shelves, with most of the action occurring on the call side. At last check, roughly 232,000 calls and 120,000 puts were on the tape, about 1.5 times what's typically seen at this point.

However, it looks like some traders don't expect GE stock to extend today's positive momentum through year's end. The weekly 12/28 8-strike call is most active, with 34,067 contracts traded so far, though the bulk of the action appears to be of the sell-to-open kind. In other words, call writers expect $8 to serve as a ceiling through expiration at the close next Friday, Dec. 28.

More broadly speaking, options traders have been buying to open puts relative to calls at a quicker-than-usual clip in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), General Electric's 10-day put/call volume ratio of 0.58 ranks in the 73rd annual percentile.

The skepticism has been ramping up elsewhere in Wall Street, too, with short interest up 36.4% since early September. But while the 135.07 million shares are the most since the June 15 reporting period, they account for a low 1.6% of GE stock's float.

On the charts, General Electric stock has surrendered 55.6% so far in 2018. The security is currently pacing for a 31% fourth-quarter loss -- which would mark its worst since the stock market bottom in the first quarter of 2009 -- and hit a nine-year low of $6.66 on Dec. 11. Plus, today's rally is running out of steam just below $8, a region that's contained the stock since late November.

general electric daily stock chart dec 19

Published on Dec 19, 2018 at 3:01 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Intraday Option Activity

Options volume is accelerated on PolarityTE Inc (NASDAQ:PTE) this afternoon, as the healthcare stock looks to snap its three day losing streak. Nearly 1,715 options are on the tape -- four times the average intraday amount -- with PTE shares up 8% at $14.52.

The upside comes following news the regenerative tissue specialist has inked a deal with the University Hospitals Cleveland Medical Center to offer its SkinTE product at the medical center's burn care and chronic non-healing wounds facilities. Plus, Cantor Fitzgerald reiterated its "overweight" rating and $65 price target -- a 346% premium to current trading levels.

Short-term options traders, meanwhile, are targeting a quick reversal for PTE stock. Amid relatively light absolute volume, the equity's December 17.50 put is likely being bought to open for a volume-weighted average price of $2.30. If this is the case, breakeven for the put buyers at the close this Friday, Dec. 21, is $15.20 (strike less premium paid).

Looking at the charts, PTE stock has struggled since its June 21 peak at $41.22, down 65%. More recently, the shares found their footing near $12.50, but subsequent rallies from here have stalled out near the formerly supportive $17.50 region, as well as the stock's descending 80-day moving average.

pte stock daily chart dec 19

Published on Dec 19, 2018 at 3:06 PM
Updated on Mar 19, 2021 at 7:15 AM
  • Stocks On the Move

Stocks have erased their earlier gains after the Fed decided to raise interest rates, and signaled support for "further gradual increases." In the meantime, traders are monitoring a huge post-earnings pullback from delivery giant FedEx Corporation (NYSE:FDX), new legislation sinking prison stock CoreCivic, Inc. (NYSE:CXW), and buyout buzz around semiconductor name Mellanox Technologies, Ltd. (NASDAQ:MLNX). We'll take a closer look at shares of FDX, CXW, and MLNX below.

FDX Hits New Low After Shocking Guidance

FedEx last night substantially lowered its 2019 forecast, saying there's been a noticeable slowdown in the global economy. This news has the stock at fresh lows, with FDX earlier bottoming at a two-year worst of $165.66 and last seen at $167.17, down 9.6% on the day. At these levels, FDX shares' year-to-date deficit has fallen to 32.5%.

A number of analysts chimed in with price-target cuts, including Oppenheimer which lowered its FedEx price target to $234 from $288. More bearish analyst attention could be coming in the future, too, since so many brokerage firms are still bullish. To be more specific, 15 of 19 analysts in coverage have "buy" or "strong buy" ratings.

First Step Act Sends Prison Stocks Spiraling

CXW stock is sliding on news the U.S. Senate has passed the First Step Act, a measure to reduce the sentences of certain prison inmates. The shares were last seen down 5.6% at $18.97, hitting a new 52-week low of $18.59 earlier, extending their multi-month downtrend that began after an August high above $26.

It's possible a few short sellers saw this sell-off coming, since short interest rose 18.6% in the last two reporting periods on CoreCivic. At the same time, just 1.8% of the total float is sold short.

MLNX Could Be a Microsoft Target

MLNX stock is gaining, up 3.8% at $92.25, thanks to reports Microsoft (MSFT) could buy the company. Still, the shares remain in the $85-$95 range that they've bounced between since early November. Longer term, the semiconductor specialist has added almost 43% in 2018, and hit a six-year high of $99.14 on Nov. 7. Such outperformance has earned Mellanox Technologies mostly bullish attention from analysts, with 10 of 11 calling the security a "strong buy."

 

Published on Dec 19, 2018 at 9:46 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Analyst Update

J.P. Morgan Securities cut its price target on Under Armour Inc (NYSE:UAA) to $21 from $25, though this is still an 11.6% premium to last night's close. In reaction, UAA stock is down 1.2% to trade at $18.58, but finding support near its 320-day moving average, which served as a floor in late October, too.

The pullback to this trendline could signal a short-term rally for Under Armour shares. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, the stock's previous retreat to this trendline resulted in a one-month gain of 25.9%, and culminated in a record high of $24.96 earlier this month. This would just echo UAA's long-term performance this year, with the shares up 29% so far.

Options traders have been buying to open puts over calls at a quicker-than-usual clip in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), UAA's 10-day put/call volume ratio of 1.40 ranks in the 81st annual percentile.

This skepticism is seen outside of the options pits, too, with 19 of 24 covering analysts maintaining a "hold" or worse rating on Under Armour stock. Plus, the average 12-month price target of $20.96 is a tame 12% premium to current trading levels. Should UAA take another sharp bounce from its 320-day trendline, a capitulation from some of the weaker bearish hands could fuel the stock's fire.

Published on Dec 19, 2018 at 10:08 AM
Updated on Mar 19, 2021 at 7:15 AM
  • Analyst Update

As Wall Street digests a post-earnings slide from Micron Technology (MU), other chip stocks are in focus, as well. This follows a note out of Morgan Stanley that urged investors to "stay cautious" on the semiconductor industry, with the firm calling out weakness from almost all key markets, on top of valuations it still sees as too high.

Looking at the specific names from the analyst note, Morgan Stanley said it was siding with Intel Corporation (NASDAQ:INTC) in the closely watched battle with rival Advanced Micro Devices, Inc. (NASDAQ:AMD). At the same time, the firm called attention to AMD's computer processor product pipeline, and said a slowdown in the data center business could be a risk for INTC in 2019.

On the charts, Intel stock is trading down 0.4% today at $47.47, remaining in the tight sideways pattern that's been in place since the end of October. As for AMD, the shares are 1.5% lower at $19.20, still holding atop a trendline connecting higher lows the past two months. A quick bounce could be in store for AMD, too, considering it's one of the best stocks to own after a Fed rate hike.

Another name mentioned in the note was Nvidia Corporation (NASDAQ:NVDA). Despite the stock's recent struggles, Morgan Stanley put an "overweight" rating on the equity. NVDA shares were last seen trading 0.5% lower at $146.36.

Traders recently have been showing bearish tendencies toward NVDA. For instance, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows higher-than-normal put buying relative to call buying during the past two weeks, and short interest on Nvidia rose by 18.3% in the last reporting period.

 

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