The stock peaked on the first 10 days of May with a push to about 77.25-twice! But this push up was also accomplished on continually increasing weakness, as we can see in the RSI forming a negative divergence. Now it looks to be in the beginning of a bearish decline.
Earlier this spring, Coca-Cola bottling in Greece cut production of two of its five plants. It is not surprising that sales in the country have declined significantly as consumers are not spending amid austerity measures. The depression in Greece is also forcing the bottling company to improve efficiency and cut costs. Coca-Cola HBC reported a fourth-quarter net loss of 11.8 million euros ($15.9 million) compared with a profit of 22 million euros in the same period a year earlier. If this is happening in Greece, imagine what is happening to Coke sales in other Euro countries!
While net income rose 7.9% the 1Q of 2012, it is not certain if we can expect that to continue. Recently it introduced smaller package sizes to attract price-conscious consumers as part of an effort to spur sales in North America, where the soft drink industry is in a seven-year decline. While the quarter was up 2% from the previous year, the recent bad string of economic reports may continue to put a damper on sales.
In the global picture our summer is faced with the following negative picture:
- China's Slowdown
- European Recession
- End of fed's Operation Twist
- Election Uncertainty
- Potential 2013 budget bombshell of tax hikes and spending cuts.
With all these factors taking place, we cannot ignore the present situation and consider the possibility of a long term downward trend for the stock. Not ready for a long term investment, but a short term options play might be in order for those looking to take advantage of the present situation.
The Options Play
Presently trading at 73.09 at the writing of this article, it would not be hard for the stock to drop down to strong support just below 70. So we would look at a Bear Put Spread
- Buy the November 2012 put with a strike of '72.50' (priced at $3.65)
- Sell the November 2012 put with a strike of '70.00' (priced at $2.55)
- Net Debit to Start: $1.10
- Maximum Profit: $1.40
Reasoning behind the Trade
- Looks like the beginning of a bearish trend.
- Strong support just below 70 makes the trade look good.
- Negative picture for this summer around the globe supports a bearish market journey.