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Doherty at the Close 8.7.2012

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Consumer credit expanded at the slowest pace in eight months in June, according to a Federal Reserve report released today.

European markets edged mostly higher, with the Stoxx Europe 600 up 0.7%, as investors shook off weak data and a plunge in the shares of U.K. lender Standard Chartered. Asian markets were broadly higher, with Japan’s Nikkei Stock Average advancing 0.9%, after the Bank of Japan extended measures encouraging companies to buy foreign assets in order to curb yen strength.

Crude-oil futures added 1.6% to settle at $93.67 a barrel, while gold futures eased 0.2% to $1,609.70 an ounce. The U.S. dollar fell against the euro but gained ground versus the yen.

In the corporate areas, Chesapeake Energy (CHK) raged up 9.50% today after the natural gas producer announced higher than expected revenue and asset sales. Johnson & Jonhson (JNJ) slipped along with Pfizer (PFE) after the drugmakers reported that they were discontinuing development of an Alzheimer’s treatment plan. Finally, Knight Capital Group (KCG) fell 0.65% again today, adding to the losses experienced last week with their high frequency trading error.

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Weekly Crude Update 8.7.2012

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Traders are speculating whether geopolitical tensions in the Middle East will imply a widening spread as Brent typically reacts to news in that area quicker than WTI. Others believe that the spread is too wide and that in the mid-long term the two grades will converge.

This morning the spread was trading at -$17.35 (WTI Price-Brent Price) and currently trending wider. Last fall, many bullish spread traders took profits when the gap closed from almost -$30.00 to above -$10.00.

Considering trending markets, I believe that the spread will tighten, however as a cautious trader, I cannot ignore the tensions in the Middle East, namely Iran. Brent prices are expected to rise at parabolic levels if and when this tension becomes disaster. In that case, the spread would widen at a rapid rate and bearish spread traders could pocket an easy overnight short winner.

As visible in the chart below, the crude spread typically trades in a tight range with frequent crossovers.

Picture 1

Picture 3


David Cornes holds a degree in economics from the University of Montana.

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Movers and Shakers – FOSL – 8.7.2012

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The department store accessory staple posted net income of $57.3 million or 92 cents a share. Last year at this time the company had a net income of $51.4 million or 80 cents a share. Q2 revenue was $636.1 million, 14.30% higher than last year. Analysts expected earnings of 78 cents a share and revenues of $634.9 million.

FOSL also cut their full year guidance, estimating annual earnings of $5.20 to $5.25 a year, down from $5.30 to $5.40.

This quarter’s increase in earnings was due to the company’s sales growth in Asia. Sales in the U.S. rose 18%, European sales increased 14% and 27% in Asia. Fossil, among other international retailer companies, is dreading the rise of the USD as the increase will make their products more expensive to foreign consumers.

David Cornes holds a degree in economics from the University of Montana.

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Morning Rage 8.7.2012

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The Hang Seng pushed its way forward, gaining .4% today, with a boost from recently controversial
Esprit Holdings as it appointed a new CEO and gained 28%. In the opposite direction StanChart
was hammered today by Iran allegations. StanChart began the day up over 10% this year, however
finished down 5.8% for the year with today’s massive sell-off and drop of 14.9%.The insurance sector
underperformed today with China Life losing 1.2% and Ping An insurance losing .5%. China Vanke,
the country’s largest developer, reported H1 profit 25% higher than a year ago, however margins and
average home price is down, volume rose thanks to lower costs.

European shares are down as expectations of appropriate action by the ECB begin to fade. The
FTSEurofirst dipped .1% today reversing its rally following Spanish and Italian trends as Spain dropped to
finish flat and Italy to lose .3%. Elsewhere the German Dax is up .3% and the French CAC 40 is up .5%.

The Eurozone rejected a request from Greece for a bridge loan to pay back a 3.2B bond to the ECB, who
then proposed to delay the repayment by a month. Greece will now auction 6B of short term paper to
banks this week.

Commodities are looking pretty good set to begin the morning with crude, silver and gold all up and
natural gas hanging in the red.

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