Pre-Earnings Bullish Bets On Saks Pay Off As Retailer Rallies
by Option Review - May 21st, 2013 9:46 pm
Today’s tickers: SKS, HLF & ABFS
SKS - Saks, Inc. – High-end retailer, Saks, Inc., popped up on our ‘hot by options volume’ market scanner this morning on heavier than usual trading traffic in upside calls. Shares in Saks are up 10% on Tuesday morning at a new 52-week high of $13.54 after the company posted first-quarter earnings in line with analyst expectations on higher-than-expected quarterly revenue. Shares in Saks are up more than 30% since this time last year. Bullish positions initiated in SKS options ahead of the earnings release yesterday are seeing sizable overnight gains today as shares push to the highest levels since June of 2008. Traders yesterday picked up around 500 out-of-the-money calls at the Jun $13 strike for an average premium of $0.22 per contract. Today, the $13 calls are in the money and changing hands at $0.65 each, a near three-fold increase compared to the premium paid yesterday, as of 11:50 a.m. ET. Traders appear to be buying up the $13 calls against today, with more than 1,500 lots in play versus open interest of 887 contracts. Overall options volume on Saks is nearing 9,000 contracts as of the time of this writing, which is roughly four times the stock’s average daily level of around 1,900 contracts.
HLF - Herbalife, Ltd. – Shares in Herbalife have resumed trading this afternoon, currently up 3.0% at $50.69 as of 12:20 p.m. ET, after earlier being halted with news pending. The company announced today it has hired PricewaterhouseCoopers as its independent public accountant to replace KPMG. The stock was moving higher ahead of the halt in HLF shares today, rising as much as 7.0% in the early going to $52.84. Traders looking for the stock to potentially rise to fresh 52-week highs during the next few trading sessions purchased weekly calls on the stock, buying around 1,100 lots at the May $57.5 strike for an average premium of $0.77 each. Traders long the contracts stand ready to profit at expiration this week should shares in…
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2,100 Tuesday – Goldman Gets Sheeple Ready for Slaughter
by phil - May 21st, 2013 8:10 am
S&P 2,100!
You heard it here first. Well, maybe 2nd as GS's Chief US Equity Strategist, David Kostin, says the U.S. economy will achieve above-trend real GDP growth in 2014, ending a six-year period of economic “stagnation.” And in developed economies, the final year of economic stagnation before GDP growth has been linked to price/earnings multiple expansions averaging 15%. They expect the S&P 500 p/e multiple will continue to rise, reaching 15 times at year-end 2013 and 16 times by the end of 2014.
“We are raising our S&P 500 dividend estimates and index return forecasts for 2013 through 2015. We expect S&P 500 index will rise by 5% from the current level to 1,750 by year-end 2013, advance by 9% to 1,900 in 2,014, and climb by 10% to 2100 in 2015.”
Goldman's timing is, of course, BRILLIANT, as it is Tuesday and the market has been up 18 Tuesdays in a row, so why stop now? 2,100 at 16x earnings is $131.25 per share so, in general, to be on that trend – we need to see 10% annual earnings increases from here ($110) but, of course, we were at $111.30 in January and earnings estimates have DROPPED to $110.10 as 2 rounds of earnings reports have come in weaker than expected so far – so you need a good supply of fairy dust to get as high as David Kostin.
To be fair to GS, they did call S&P 1,675 and yesterday the S&P was at 1,666 (the mark of the Blankfein!) but, unfortunately, they made that call in Jan of 2008 and were, in fact, off by about 744 points on December 31st of that year – and not in a good way! To be fair, in May of that year, they adjusted to 1,380, so only off 439 but the S&P was at 1,380 in May and, as you can see from the May 2008 Bespoke chart on the left, NOBODY SAW IT COMING – even when "it" was already there.
Oddly enough, on Tuesday, May 20th of 2008, I had a moment that now gives me severe deja vu, saying:
I’ve been growling for quite some time now that I want to see a real breakout before we turn bullish and, unfortunately, we could be in for a textbook reversal as we do
…
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What the Market Wants: No Easy Answer
by Sabrient - May 20th, 2013 7:39 pm
Courtesy of David Brown, Sabrient Systems and Gradient Analytics
So, what did the market want today? Nothing it appears. It traded on weak volume and had very little movement. This morning the market hated commodities especially silver, but by days end, the market liked silver, gold and even oil but not the dollar. Why?
Last week the economic reports were tough, with bad misses on more than one occasion. But the market tended to ignore the bad news, probably because money continues to pour into equities from money market funds, long term fixed income, and many struggling foreign economies. On Thursday, investors finally caved to even more bad news from Initial Jobless Claims and weak Housing Starts. Then on Friday, when Michigan Sentiment and Leading Indicators posted large positive surprises, the money came pouring back to generate quite a positive week for all the leading domestic indices with Small-cap Growth leading the way, up 2.6% for the week. The Russell 2000 hit new all-time highs closing up 2.2%, and the S&P 500 and DJI both hit new highs up about 2% each. None of that explains today.
In contrast to a successful quarter of better-than-expected corporate earnings, investors had a lot more to worry about than poor economic numbers: a plethora of revenue misses; bubbling problems related to the IRS; and the White House--Benghazi controversy that’s made more than just investors nervous.
Although today’s comments from Chicago Fed President were optimistic, they caused some traders to worry again about QE3 phasing out earlier than expected and that Bernanke might discuss it before Congress as early as this Wednesday. Frankly, there is little news this week with only Existing Home Sales tomorrow, Initial Jobless Claims and New Homes Sales on Thursday, and Durable Goods on Friday. But without question, the key to this week will be Bernanke’s remarks on Wednesday. There is a group of large retailers including Best Buy (BBY), Saks (SKS), Home Depot (HD), and several others reporting earnings before the market opens tomorrow. Obviously, their reports could impact this market that is waiting for more news.
The bottom line is there are no easy answers to “what the market wants.” Our analysis of current valuations showed a bit above average valuations with plenty of undervalued companies remaining. Compared to highs over the last three decades, current valuations are far below them.
Volume was very weak…
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ING US Call Buyers Look For Shares To Extend Post-IPO Rally
by Option Review - May 20th, 2013 6:06 pm
Today’s tickers: VOYA, GRPN & SIGM
VOYA - ING US, Inc. – Shares in ING Group’s U.S. retirement, investment and insurance business are up as much as 8.0% today to $26.98, the highest level since the company’s May 2nd IPO. ING US was rated new ‘buy’ at BTIG LLC with a 12-month target share price of $31.00 today. The stock has rallied nearly 40% over the IPO price of $19.50, and some options traders are positioning for the price of the underlying to extend gains during the second half of the year. November expiry options are the most active contracts by volume on VOYA today, with notable fresh interest in the Nov $25 and $30 calls. Traders appear to have purchased around 200 lots at each striking price for average premiums of $2.71 and $1.14 each, respectively. Call buyers stand ready to profit at November expiration should shares in ING US rally another 2.7% and 15% to surpass average breakeven prices of $27.71 and $31.14, respectively. Meanwhile, traders snapping up Nov $20 and $25 strike puts are positioned to make money in the event of a pullback in the price of the underlying through November expiration. The company is scheduled to report first-quarter earnings ahead of the open on Thursday. Overall options volume on VOYA is sizable, with more than 1,500 contracts in play as of 12:15 p.m. ET versus overall open interest on the stock of 190 contracts.
GRPN - Groupon, Inc. – A large trade in Groupon options in the early going on Monday looks for the price of the underlying to remain in the single-digits through January of 2014. Shares in GRPN are down 0.45% on the day at $6.94 as of 12:20 p.m. ET. The stock has increased roughly 30% since the company reported better-than-expected first-quarter revenue and a narrower-than-expected first-quarter loss on May 8th. It looks like one strategist betting shares in Groupon will trade below $10.00 through the start of 2014 sold around 50,000 calls at the Jan 2014 $10 strike for…
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ETF Periscope: Wall Street Shrugs Off Fed’s Musings Regarding Turning Off QE Tap
by Sabrient - May 20th, 2013 3:58 pm
Courtesy of Daniel Sckolnik, Sabrient Systems and Gradient Analytics
“Some of us think holding on makes us strong; but sometimes it is letting go.” -- Herman Hesse
This is one obsessed Bull that is raging through Wall Street at the moment.
Not even last Thursday’s potentially destabilizing comments by a Fed official, who essentially said that the current round of bond purchases by the central bank could begin tapering off within the next few months, did much to give investors pause.
The market’s upbeat sentiment kept rolling right along, as yet more record highs were hit throughout the week.
The Dow Jones Industrial Average (DJIA) added 1.6% for the week, while the tech-laden Nasdaq Composite Index (COMP) gained 1.8% over the course of the same time period. Meanwhile, the S&P 500 Index (SPX) added another 2.0% to its weekly bottom line, putting it up 17% year-to-date.
Rationally speaking, it could be construed as being a little odd that the threat of turning off the QE spigot, the very same one that has effectively been the chief source of fuel for the current bull market, did not shock the market into a deeper retreat than the shedding of a handful of S&P 500 Index points.
So what gives?
Do investors really feel that the economy is robust enough to maintain its small rate of growth, even without the $85 billion per month in bond purchases the Fed presently makes each month?
Maybe.
Did the results of the Q1 earnings season really convince Wall Street that the Fed’s largess is no longer required, in spite of the fact that expectations were set pretty low to begin with?
Apparently.
Thursday’s slight retreat by the equity market was handily offset by Friday’s gains, which were mainly attributed to an improvement in the University of Michigan and Thompson Reuters Consumer Sentiment Index, coupled with a rebound in the Conference Board Leading Economic Index, a leading global business cycle indicator.
So according to investor sentiment, the latest dribbles of economic data trumps any fear of consequences that might result from the Fed actually tamping down on the stimulus spigot, the very thing that has goosed the market for the bulk of the last several years.
Go figure. Any contrarians out there might take last week’s market action as a cue to follow through on their long-simmering bearish plays.
Just beware of any obsessed Bulls…
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Monday Morning Musings
by phil - May 20th, 2013 8:21 am
Actually, I'm all talked out.
I wrote a very long Macro outlook this weekend so I don't have a lot to add this morning. We've been expecting a pullback and, so far, a pullback has not come. As you can see from Doug Short's chart on the right, the S&P has pulled off a spectacular recovery – getting to 109.2% of it's pre-crash levels in just 5 years, which is better than the Dow did 20 years after the 1929 collapse (despite FDR Stimulus and the Great War) and almost 70% better than the Nikkei has done in the past 23 years.
Adjusted for inflation, the S&P is still DOWN 19.6% from it's 2000 highs so the goal is 2,160 – for those of you who like an even playing field. That would be a very happy 35% over our "Must Hold" line of 1,600 on our Big Chart and that's just a tad shy of that big 38.2% that constitutes a Fibonacci Sequence but (and this is interesting) 23.6% below 2,160 is, TA DA, 1,650.
So here we are at 1,667 and we have our 5% rule telling us that the next significant resistance is 1,680 and Fibonacci has been telling us since 1250 (AD) that we should be looking for 1,650 – not bad for a dead mathematician! If we hold 1,650 and we get over 1,680, then we HAVE to be bullish. IFF the Russell hits 1,000 – we HAVE to be more bullish.
I put up some bullish plays in our weekend post – one is even being added to our new Short-Term Portfolio (CLF) but our first two plays (from Friday's post) were bearish (USO and GME) – as we're still expecting that pullback and those levels have NOT been crossed yet.
I already sent out an Alert to our Members this morning to look at short s on Oil (/CL) at $96 and the Nikkei (/NKD) at 15,400 as we're expecting a poor Chicago Fed report at 8:30 and, of course, the oil contracts are winding down in two days and they still have 50K contracts to get rid of with 331,000 already stuffed into July (331M barrels of fake orders). That puts the odds nicely in favor of shorting oil as nothing blew up over the weekend to support $96 a barrel.…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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