3 New Mega-Trends to Brace For in Q2: Coal, Dividend Yields and Shorted Oil Operators

We witnessed a 200,000 plus contract position initiated recently in S&P 500 ETF (SPY) puts around 60 cents apiece. This put buyer was taking out what we think is reasonably priced insurance on the market through April 15, 2011 expiration of these contracts. With earnings season right around the corner after a strong rebound to February 2011 highs, we think the caution may be warranted. The insurance premium was around $12 million. Earnings misses and upside surprises may reveal a mixed bag. We reviewed all Dow Jones 30 stock earnings here and here. Volatility has fallen sharply following the sharp rise in the VIX (^VIX) and its iPath Short-Term Futures ETN (VXX) to lower levels. If earnings come out strong, deterioration in the VIX and especially the VXX should continue. Forward month contracts are still elevated and suggest traders are anticipating a rise in volatility.
1.) The Coal Bull Is Still Charging

Coal stocks should continue to be winners in quarter 2: Cloud Peak Energy (NYSE: CLD): Cloud Peak generated $1.37 billion in revenues in 2010, which was a decrease of 1.96%, after rising 12.78% in 2009. The EBT margins in 2010 and 2009 were 15.46% and 18.2%, respectively. The respective ROEs were 8.6% and 150.9%. The 30-day put/call ratio is 0.5. Share price is up 1.6% since December 17, 2010. Cloud Peak Energy is the third-largest U.S. coal producer and the only pure-play Powder River Basin coal company.
Arch Coal (NYSE: ACI): ACI is the second-largest coal producer in the U.S. and operates mines primarily in the Powder River Basin, an oligopoly-controlled coalfield with easy-to-mine, low-sulfur coal, allowing miners to extract at one-fifth the cost of industry peers in the Central Appalachian region. Because of its excellent position in the industry, Arch has built a small moat for itself in an industry with a bright long-term future, as Asia continues to demand this commodity, driving prices upwards for all producers (even those that don't directly supply to Asia, like Arch). Alpha Natural Resources (NYSE: ANR) With its acquisition of Foundation Coal (NYSE:FCL), ANR is one of the largest coal miners in North America. ANR is now going after Massey (NYSE: MEE) to round out its mining portfolio. The company extracts, processes and markets metallurgic and steam coal everywhere from Colorado to the Central Appalachian region to the Powder River Basin. Should metallurgic prices remain high into next year, ANR will be in a very solid financial place, providing investors with an opportunity for above average returns.... Read more