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My June-13 Strategy

Jun. 07, 2013 4:01 AM ET
Elgrey profile picture
Elgrey's Blog
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Sorry for coming late but first week of June was very busy. OK, my June plans:

NatGas - assuming yesterday's excessive injection, bearish COT, and seasonal downtrend in June, my call to short NG remains intact. NatGas is just a bit above 3.80 as I write this blog while it was at 4.35 a month ago. Are we going to reach 3.50-3.60? We shall see...

Feeder Cattle - seasonal trends and COT point at soon price appreciation. Cattle on Feed report shows that this year we have less cattle on feed than we had a year ago. I want to wait for next report and see if it confirms my plan to buy. What is a worrying factor is weak data from Export Sales report. OK, waiting for Cattle on Feed report.

Silver - I am still holding my long position and I am not going to change it. I am betting on price recovery.

Question Marks (there are lots of them):

Lumber - all pointers show at continuing bearish trend. I do not know how long it will last and I am not convinced to jump in at the moment.

Copper - copper has taken lots of damage and started a slow recovery. Seasonal trends show that starting from June prices tend to strenghten.

Heating Oil - as in May, I am looking for a seasonal bottom in June but I am not quite sure if we are there yet. Price level of 2.80+ does not seem like a bottom to me. However, there could be a rational explanaition for unusually strong prices - US has become exporter of distilled products and this could be a game changer.

Ag sector (W, C, S, SM, BO etc) - as I outlined earlier I do not suggest any directional trade -neither bearish nor bullish. The future of this crop is unknown - drought has weakened but it did not go away entirely, planting was late but now it is no longer a late-comer by large, rains have come but in excessive amounts in some areas. I do not want to predict anything. What I think of is neutral trade betting on range prices by writing out-of-the-money puts and calls simulteneously and doing that only after next WASDE report (which is due in a few days).

Overall "Sell in May" did not happen. Or it happened but only for smart money? I am not watching equity market closely, I barely manage to watch 20+ commodities with just 2 eyes but I think it is clear for every sober-minded person that this rally has no fundamentals but it was fueled with QE cash inflows. New crash will happen in coming months or a year. I do not think it will be monster crash but markets will take some pain. It is the nature of things to return to status quo. And today's status quo is uglier than SP500 and Dow Jones show. United States have not reached any significant progress. Greece and most likely Cyprus managed to pass the worst part of the survival race but Italy, Spain, Portugal, even France are still in game. Yesterday I read that economy of Finland returned negative growth. It well may happen that EU economy enters into a zombie stage. That's what happed to Japan after they failed to admit own crisis years ago and tried to flush it with free cash. Did not help - Japan economy has become stagnant for decades. Inflation does not cure overspending. Think of it - in 1970's the exchange rate was USD1 for JPY30, today it is USD1 for JPY100. A few generations of Japanese lost their savings because their currency lost it value. "Inflation is the modern way that governments default on their debt."© Mike Epstein, MIT. Like they or not but it is a fact.

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