S&P Emini & Unusual Options Activity Daily Vid Recap 8.8.2012
Category: Blog
S&P Emini Pivot Points for 8.9.2012
Euro (6E) and Oil (CL) Pivot Points for 8.9.2012
Doherty at the Close 8.9.2012
Overseas, the Asian markets closed broadly higher, tracking previous gains in the U.S. and Europe. Japan’s Nikkei Stock Average rose 0.9% to a one-month high and China’s Shanghai Composite gained 0.2% to rise for the fourth straight day.
In other corporate news, Walt Disney (DIS) rose 1.35% when they reproted fiscal earnings that exceeded expectations but revenue that fell short of expectations. Priceline.com (PCLN) dropped signifcantly, -17.28%, after they beat Q2 EPS estimates, but substantially lowered their third quarter outlook among uncertain economic activity. Finally, Bloomin’ Brands, owners of Outback Steakhouse and Fleming’s steakhouse, surged on their IPO after lowering its offering price and the number of available shares.
VIX Outlook 8.8.2012
The VIX has been surprisingly crushed in the previous month, considering all of the Euro debt crisis talks and talk of QE3. S&P 500 futures (ES_F) seem to be trading flat or in a directional trend these days without much movement nor fuel for the fire. I am puzzled why the ES is reaching near pre-crisis highs without much good news appearing. Unemployment has been above 8% for over 40 weeks, global economies are worried about sovereign defaults and Treasury yields are trading at their peak.
From the chart below, you can see that the current price of the VIX is trending toward the period low of 14.26. In my opinion, I think that right now is a great time to go long this index using a bullish option play, given that I do not think this index can go lower, and I do not think that volatility will stay this low in these times of economic uncertainty.
The current front month VIX is trading at 13.66, implying a 3.9% move in the index over the next 30 days. I believe that the VIX is trading at a deep discount as I believe that global tensions are building up for ia sharp movement in the ES with a highly probable movement outside of the 30-day estimated value. If I were going to trade this contract outright, I would put my target around 30, a level easily reached with any movement in the VIX.
David Cornes holds a degree in economics from the University of Montana.
Trade of the Day (MSNT) 8.8.2012
Trade: Selling the MNST Aug 60-57.5 Put Spread and 75-77.5 Call Spread Condor for $1.15
Risk: $135 per 1 lot
Reward: $115 per 1 lot
Notes: good risk vs reward that the stock does NOT move more than 12%
Halftime Report 8.8.2012
Gold futures gained $1.20 to $1614.00 and WTI crude oil futures fell 67 cents to $93.00.
Dean Foods (DF) gained over 38% after posting strong earnings and plans to start an organic foods unit.
Discount travel sites posted terrible earnings last night, sending Orbitz (OWW) and Priceline.com (PCLN) down over 25% and 15% respectively. Priceline reported that international travel, a large piece of their business, declined during the previous quarter due to worries in Europe.
Yet another coal stock, Alpha Natural Resources Inc. (ANR) faced a 7% decline as they reported a net loss of 33 cents a share. Last year at this time they reported a net income of 99 cents a share. The coal industry has taken a blow this earnings season.
David Cornes holds a degree in economics from the University of Montana.
Metals Update 8.8.2012
The current price of gold and silver are $1612.70 and $28.10 respectively with a ratio of roughly 57. Since the dawn of the financial crisis in 2008 the ratio has been favoring the price of gold as central banks have been beefing up their supplies of bullion in the fear of inflation.
When gold is mined, for the most part, it is kept in the form of bullion. Silver, on the other hand has a significant industrial demand. Most recently computer manufacturers have been the largest piece of the silver demand pie, however, in the past, film production for photography led as silver was a key ingredient in film production.
As far as market characteristics are concerned, I would say that about 80% of metals trades go through the London Mercantile Exchange (LME). Silver markets are known for being a relatively thin market, making paper a big mover in the metal, making the silver market significantly more volatile than other metals. Another silver market characteristic to consider is that the open interest in this market consists of roughly 400% more paper-backed than silver-backed contracts. This discrepancy implies that there will be a market spike whenever the paper positions are forced to cover their positions.
Metals ratios are known for being irrational. Platinum is roughly 19 times more rare than gold, yet is trading at a $200 discount. One of my longer term trade options would be to spread the pair, buying platinum and shorting gold for when the current goldbug trend fades. Aside from this spread, I remain bullish on gold and silver, slightly more bullish on gold as I believe that inflation will become a significant problem in the healing of the global economic crisis.
David Cornes holds a degree in economics from the University of Montana.
Movers and Shakers – PCLN – 8.8.2012
Priceline reported Q2 profit of $352 million or $6.88 a share and $1.33 billion in revenue. Last year PCLN earned $256 million or $5.02 a share and revenue of $1.1 billion respectively. Analysts were expecting revenue of $1.35 billion or $7.35 a share.
PCLN also lowered its guidance for Q3 to earn between $11.10 and $12.10 a share while analysts were expecting a number around $12.80. The company explained that they could blame the less than expected numbers on the Euro crisis. They had a 27% increase in bookings over last year’s results this quarter to $7.33 billion, with international bookings accounting for $5.95 billion of that number.
Hotel bookings increased 39% over last year while airline tickets decreased by 2%.
PCLN’s poor earnings were accompanied by competitor Orbitz’s (OWW) terrible earnings as well. In my opinion these stocks were very overvalued and must be humbly priced considering the current global economy and crippled travel industry. Some could argue that gloomy economic times would persuade travelers to use such discount sites, however I am not sure that anyone would use the sights more than their inceptions in the early 2000’s.
David Cornes holds a degree in economics from the University of Montana.
Morning Rage 8.8.2012
The Hang Seng ends flat today as StanChart has a bit of a rebound towards the end, turnover declined
11% from yesterday. StanChart finished up .8% after opening down 3%, which does not quite make
up for its 15% drop yesterday. Esprit Holdings dove 12.2% today erasing close to half of its 28% leap
yesterday. Cathay Pacific Airways lost 4.3% after posting its worse first half loss since 2003, the airway is
now down 7.2% for the year compared to the Hang Seng being up 8.8%.
The FTSEurofirst is currently down .5% today, after closing at a 4 month high yesterday, as sentiment
remains highly cautious. Boston Fed Bank president said yesterday the ECB should launch another bond
buying program of whatever size necessary to get the economy back on its feet. Standard Chartered
grasped some of yesterday’s losses, up 7% to lead the index. Global miner Rio Tinto gained 1.9% stating
it is sticking to its 16B spending plan for the year even with weaker prices dragging down profits.
The MBA report came in negative but weak showing purchases down 1% and refinancing down 2%.
Commodities are currently showing crude, gold and silver all set to begin in the red and natural gas
up .4%.
Contributer Chris Rygh is currently pursuing his MBA in Wisconsin and has a passion for the Market.
Comments can be directed to ryghcw19@uww.edu