Vale S.A. (VALE) Feels the Heat from Rousseff's Bold Plan

Vale SA (ADR) (NYSE:VALE) heads south, after the U.S. and Brazil set a bold environmental goal

Jun 30, 2015 at 3:31 PM
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Just one day after the Supreme Court shot down President Barack Obama's domestic environmental initiative, the White House announced a bold renewable energy strategy with Brazil. Specifically, Obama and Brazil President Dilma Rousseff agreed to create 20% of domestic electricity from non-hydropower renewable sources over the next 15 years. The news appears to be having a negative effect on Brazil-based oil-and-gas issue Vale SA (ADR) (NYSE:VALE) -- which is off 4.3% at $5.85, and on track to notch its lowest daily close since early April.

Today's negative price action is nothing new for the stock, though. Since hitting an annual high of $14.93 last July, shares of VALE have surrendered nearly 61% of their value. Pressuring the security lower has been a number of moving averages, including its 80- and 160-day moving averages, and more recently, its 10-day trendline.

In the options pits, speculators are showing a distinct preference for puts over calls, with the former outpacing the latter by a 3-to-1 ratio in today's trading. This is just par for the course, however, per VALE's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.30, which ranks in the 69th annual percentile. In other words, puts have been bought to open over calls at an accelerated clip in recent weeks.

Even more telling is VALE's Schaeffer's put/call open interest ratio (SOIR) of 2.30. Not only does this suggest put open interest more than doubles call open interest among options expiring in three months or less, but it ranks just 4 percentage points from a 52-week peak. In other words, speculative players have rarely been as put-skewed as they are now.

This skepticism has spilled outside of the options pits, as well. Although short interest declined 6.8% in the most recent reporting period to 195.2 million shorted shares, it would still take nearly seven sessions to cover, at VALE's average daily pace of trading.

Additionally, of the 13 analysts covering Vale SA (ADR) (NYSE:VALE), 11 maintain a "hold" or worse recommendation. However, VALE's consensus 12-month price target of $7.22 stands at a 23% premium to current trading levels, leaving the door open for a round of price-target hikes, should the stock continue to struggle.


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