Movers and Shakers – MNST – 8.9.2012

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The energy drink company reported an increase in Q2 earnings of 30%, however missed analysts expectations. Gross sales grew by 28.7% to $678.9 million with net sales up 28.2% to $592.6 million. Analysts’ expectations for sales were $596.1 million. Profit rose to $109.8 million or 59 cents a share, missing expectations of 61 cents a share. Last year at this time, MNST reported profit of 45 cents a share or $84.2 million.

In recent years the energy drink industry has taken off. Year-to-date MNST is up 47%. Although production costs have risen, MNST’s customer base remains strong as the energy drink sector remains popular. I myself prefer coffee, so I am not drawn to MNST’s product line, however the numbers do not lie, people want Monster Energy drinks.

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

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Morning Rage 8.9.2012

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The Hang Seng climbs just over 1% to a 3 month high lifted by the real estate market. StanChart, who
we have heard a lot about this week, rose again today 4.3%. Property data released today showed sales
rose in July prompting stocks forward. Evergrande, China Resources Land, and China Overseas Land rose
4.0%, 2.3% and 2.6% respectively. Li & Fund gained 3.1% ahead of its first half earnings with a first half
profit of 312M. Consumer inflation was down to 1.8% from 2.2% in China and factory output was at
9.2% in June, the weakest in over 3 years.

The FTSEurofirst inched forward .1% with a boost from miners due to Chinese inflation data. Banks and
commodities also helped prop the market as Standard Chartered also gained in Europe up 3.8% fighting
its accusations. Norwegian offshore engineering group Subsea 7 gained 5.8% today. Dane drugmaker
Novo Nordisk added 2.8% with better than expected 2nd quarter revenue. A few German stocks held the
country down as Porsche lost 4.6% and their second biggest lender, Commerzbank, dropped 4.4%.

Interesting news from Morgan Stanley as machines replace traders in the bond and interest-rate trading
divisions, this is due to sluggish activity and to prepare for a time when they will trade live stocks.

Commodities are looking mixed this morning with crude and gold up and natural gas and silver currently
down.

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

Doherty at the Close 8.9.2012

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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

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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.

VIX Term

VXX

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

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Trade of the Day (MSNT) 8.8.2012

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ChartPurpleTrade:  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

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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.

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Metals Update 8.8.2012

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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.

GOLD

sc


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

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