Elgrey's  Instablog

Elgrey
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Expat finance professional living and working in Hong Kong.
  • My April-13 Strategy 0 comments
    Apr 1, 2013 4:41 AM

    In April I am interested in following commodities:

    Soy Oil - Commitments of Traders report shows that hedgers are passing part of their bullishness to speculators, which is a good sign for those like me who have established longs before speculators resumed buying. I intend to keep longs at least till the second half of the month or even longer. Export sales are still strong and Brazil logistics mess does not allow too many beans to enter the market. However, this may very soon. Another news is about Brazil taxation of soy oil - they decided to give tax benefits to exporters of soy meal and soy oil. I do not think this would have immediate effect but in the long run BO supply should increase.

    WTI Crude Oil - I keep my longs open and hope to see price rally to continue as speculators increase their long bets. Fundamentally speaking there is a glut of oil in US storages but market is all at mercy of speculators who may further increase long positions betting on further recovery. I intend to keep longs open for another month or so.

    Cotton - I increased my shorts last month when July contract weakened from 92 to 90. I intend to keep short open. From perspective of amounts of futures contracts kept by speculative sectors it looks like market has reached the point when further appreciation is not likely. It is possible but speculators have beaten themselves since very long time - last time they were that long was in Feb-Mar 2008 when prices reached USD0.85+ levels. By June 2008 prices went down below USD0.70. Consider this and trade accordingly.

    Live Cattle - I am long and I believe that market will heat up further - speculators increase their pace in adding to long positions. Finally market noticed the fact that herd population decreased.

    Natural Gas - I am short NG this month. Prices shoot up tremendously in March and sharp price hikes cause sharp corrections if they are not supported by anything serious. Fundamentally speaking market glut has finally ended but we are at the very end of heating season and from now on the inventories will be building up. I expect prices to return to USD3.60 levels within a few months.

    Question Marks:

    Palladium - COT indicates very bearish price direction. I am a bit concerned about possible impact that 1Q reports may cause on metals sector across the board. I would wait for a bit.

    Copper and Platinum - COT is quite bullish but not perfectly bullish. So I would stay away from these two unless numbers turn better or we get terrific news which I do not rule out as we get more and more good news about recovery in States and China. At the same time Cyprus story is still here with us.

    Heating Oil - seasonally speaking HO is about to reach the bottom soon. COT confirms this. However prices are at elevated levels due to tight inventories of distillates. I want to see more evidence that market reached the bottom before initiating long trade.

    I suggest to avoid any trade in ags until that would be clear where the market is. We may see further sharp correction as well as price appreciation. Fundamentals are mixed - drought eased but not entirely, crop progress is not yet known, the degree of recent price fluctuations shows how nervous market participants are.

    Political jitters can add too - EU stabbed Cyprus last month and banks were closed until recent days. We shall see first results of deposits robbery, forgive me, hair-cuts in April. EU set up precedent when depositors should pay to save banking system. This looks familiar to bank bailouts in the US with the difference that today not the taxpayers but select companies and individuals would know exactly how much they lost to compensate for mistakes made by Cyprus bankers. Knowing that Asian banks are friendlier and healthier I can foresee that capitals will flow to Asia with increased pace. Europe cuts the branch on which they sit. Also, EU has shown their inability to help weaker members states - this gives signal to other "bad apples" that they won't get help unless they take pain and rob own people. Ultimately some countries can leave the EU, proving that the whole model is immature and unstable. Napoleon Bonaparte said "A man will fight harder for his interests than his rights" and events of last month show that EU put too many interests in danger.

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