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George Kelly
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The author studied economics at Oregon State University.
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  • Shorting WTI Ahead Of Obama's Cushing Visit

    WTI Crude is one news story away from dropping below $100 per barrel. Long term I am bullish on oil however, the recent move up in oil is headline driven. In other words, the 8.5% increase in the price of a barrel of light crude over the last month and a half is not because demand for oil has increased 8.5%. In fact the IEA expects oil demand to grow by only 0.9% in 2012, citing a subdued economic backdrop.

    Over the last two weeks oil has moved significantly on two false reports: a Saudi Arabian pipeline explosion and coordinated release of strategic reserves by the U.S. and U.K. The take away from these price movements is that oil is poised to run with the headlines in either direction.

    Thursday presents the potential for a price moving headline as President Obama visits Cushing, Oklahoma: The Pipeline Crossroads of the World. USA Today reported that Obama will press for expediting the construction of portions of the Keystone pipeline project:

    While visiting Cushing on Thursday as part of a trip to promote his energy policy, Obama will reiterate the administration stance that expediting construction of the southern segment will help relieve a "bottleneck of oil" and bring domestic resources to market, said the official, who spoke on the condition of anonymity because the president has yet to speak on the matter.

    Being that there tends to be a correlation between high prices at the pump and election year rhetoric in regards to the price of oil, the potential exists for Obama's speech at Cushing to put short term pressure on oil prices. Moreover, being an election year, the odds are that the content of the speech would be crafted to avoid and price positive rhetoric.

    One way to play a short term correction in WTI is using put options in the ETF: United States Oil, LP (USO). Weekly put options the day before expiration offer an excellent opportunity to enter a highly leveraged position with a high risk/reward ratio.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in USO over the next 72 hours.

    Tags: USO, short-ideas
    Mar 22 10:47 AM | Link | Comment!
  • Playing Investor Sentiment with ETFs
    In the recent “good news, bad news” market cycle, where the markets seem poised to overreact to every bit of news that hits the wire, I look to take advantage of investor sentiment by investing in broad market, speculative ETFs, in lieu of individual securities.
     
    There are several offerings that allow investors to profit from movement in the underlying indexes in both bull and bear markets. The straightforward ETFs, such as DIA, simply seek to replicate the performance of the underlying index, in this case the DJIA. The inverse ETFs, DOG, for example, seek to replicate the inverse of the performance of the underlying index, here too the DJIA. For a leveraged position, investors can choose an ultra ETF. There are eight choices I like to consider for this strategy:
     
    If I am bullish on the market I will buy the following ETFs:
    • SPY – nonleveraged long position in the S&P 500
    • DIA – nonleveraged long position in the DJIA
    • SSO - 2x leveraged long position in the S&P 500
    • BGU - 3x leveraged long position in the Russell 1000
     
    If I am bearish on the market I will buy the following inverse ETFs:
    • SH - nonleveraged short position in the S&P 500
    • DOG - nonleveraged short position in the DJIA
    • SDS - 2x leveraged short position in the S&P 500
    • BGZ - 3x leveraged short position in the Russell 1000
    The coming week provides several opportunities to gauge investor sentiment. First and foremost, all eyes will be on Greece and investors will be closely monitoring market reactions to news out of the EU. Additionally, the weekly economic calendar presents significant potential for moving the indexes. On tap for the coming week are Bernanke’s assessment of the economy on Wednesday and durable goods orders on Friday.

     
    Economic Calendar
    DateReportConsensusPrevious
    June 21Existing Home Sales4.7M5.05M
    June 23Jobless Claims418,000414,000
    June 23New Home Sales305,000323,000
    June 24GDP Estimate1.8%1.8%
    June 24Durable Goods1.0%-3.6%

    Overall, market sentiment seems to be bearish. Investors appeared to be selling into the rally on Friday after seeing Wednesday's gains erased in Thursday's slide. From a technical perspective, this is a difficult market to time. Nevermind fundamentals, I believe they are largely irrelevant for the next several weeks, until we approach earnings season. That leaves political and economic news as the prime motivator of investor sentiment. Consequently, I prefer the diversification of the index based ETFs.


    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BGZ, SDS, DOG over the next 72 hours.
    Jun 19 11:54 PM | Link | Comment!
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