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Elgrey
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Expat finance professional living and working in Hong Kong.
  • My August-14 Strategy Review

    August ended and September is on its way. Let's have a brief review of gains and losses.

    Heating Oil - position closed a week+ ago. My expectations of oil price recovery did not come true and I closed position with minimal gains. Gains, that's right - I opened bullish position when HO was around 2.90 and I closed it when HO was around 2.80 and still I made money because I was selling puts instead of buying futures. Good strategy, a spare parachute, if you like. Currently I do not recommend to touch any oil product cause its further direction has a huge political component these days. OK , it has been there forever but now it weighs more than before with all the sanctions against neo-nazi from Moscow. History tells us that in 1980s Soviets were crushed with oil prices falling from USD40 to USD7 - their oil-selling economy did not survive that hit and collapsed. What happened once can always happen again, that fall in prices took a long time. We never know if that fall was intentional or not so I seek for fortunes somewhere else. Another factor to bear in mind is positioning of speculators - in June they amassed a gigantic net long position of nearly 500,000 contracts. This was something for the Guinness Book of Records. Today net long position is around 300,000 and prices are almost 15 bucks lighter. Imagine what will happen if net position will fall to miserable 20,000 net long contracts. That also happened a few years ago when the price fell to USD70. So, again I have no comfort understanding the situation and I am to stay aside.

    Natural Gas - keeping options strangle here betting on prices to stay within 3.50 - 4.50 for another couple of months. We have two opposing forces in play - low inventories on one hand with injections not sufficient enough to bring back inventory levels to 5-years average before winter, and calm summer and prospects of mild winter plus injections are still above average values, so 5-years average inventory levels may be reached in a few months.

    Cocoa - last days were black days for bulls. Prices touched 3300 per ton and fell under 3100. I keep my shorts open. Crops have been good so far, weather in Western Africa is supportive, port arrivals are high. No reason to worry about supply and all the stories about demand you can spare for later. Like I was saying earlier EU demand became weaker and stories about strong Chinese demand are for dummies. I live in Hong Kong and when I see what "chocolate" is on shelves I just wonder - who buys this stuff with cocoa percentage of 30% to 70%? This is not Belgian chocolate, this is some cheap fake which does not need much cocoa butter and powder to make. Besides I do not see much fashion about it.

    Coffee - historically coffee has a local peak during 1st week of September and then eases. We are seeing this picture these very days. I opened shorts earlier than needed and missed some profits but I still hope to make more.

    Soybeans - I advised not to short any longer and I was somewhere wrong. But WASDE is due tomorrow and who knows... Instead I have a strangle in soymeal which is OK so far.

    Lean Hogs - after a strong bearish rally prices made a steep U-turn and rushed upwards. This is normal for this part of the year and I still expect prices to fall because facts about hogs are the same - cheap feed, PEDv is over, COT is bullish on closest October contract only and bearish on further contracts. Let's see what Hogs and Pigs reports will tell us in 2 weeks. I have a small short position.

    Sugar - I did not announce it earlier but I shortly after I wrote my previous comment I opened bearish position in sugar. Brazil sugar production was great last year and this year it is on par and even slightly better. A couple of days ago I added to my short position.

    This is it for August and early September review.

    Sep 09 11:01 PM | Link | Comment!
  • My August-14 And September-14 Strategy

    It is mid of August and here is my plan for the rest of the month and September:

    Heating Oil - as crude oil lost almost US10 off its highs in mid June I guess from a purely technical standpoint this is an overkill and recovery is due. Also, from fundamental side of the board it is smart to buy heating oil before cold times. So I am long heating oil.

    Natural Gas - I was shorting NG since May but now I have a feeling that bear rally is transforming into a neutral pattern. I do not think the injections are sufficient to cover deficit however I do not see much reason for prices to shoot up either - El Nino winters are usually mild ones. With this in mind I wrote out-of-the-money puts and now I have a stragle in natural gas betting that prices will be around USD4 +/-.

    Cocoa - I was wrong predicting CC decline a month ago but I continue to hold the same position. EU grinding report was bearish but market keeps on ignoring it and they talk only about US and Asia reports. At the same time EU consumes the same amount of raw cocoa as States and Asia and global demand for cocoa reduced in 2nd quarter not increased. Crop condition news from Africa support ideas of good main crop. Mid-crop is healthy too. I do not understand all this fuss about growing cocoa prices. Besides there are already news that current prices levels discourage buyers.

    Coffee - same here. Market thinks of a situation which is different from reality. COT report points at bearishness of commercial users and this pointer is way more trustworthy than all the reports from "analysts" about death of coffee crops in Brazil. Do not buy it, sell it.

    Soybeans - every month USDA reports news that smash remaining bulls. My guess is that market has taken main hit already and I am cautious about betting on further price drops. Maybe but not definitely - this is my opinion on further bear rally in soybeans. Bad (bearish) news have been brought in and accounted for - big crop numbers from US and Brazil, good carryover stocks, good weather. What has not been announced loudly yet is astonishing amount of export sales and definitely these guys know what they do. Last time such interest in buying huge amounts of soybeans in July was in 2010 when prices hit the bottom of USD9.00 in June'10 and began recovery from there. So I would think twice. Instead I opened a strangle position in Soymeal - no matter if beans fall, this commodity will be supported by cattle and hogs sectors. Especially from hogs sector that is now recovering from PED virus.

    Lean Hogs - PED virus killed many piglets in early 2014. It takes about 6 months for a piglet to grow into a mighty marketable hog and this explains why current prices of pork are so high. However, PEDV is in the past and farmers will take advantage of high prices and cheap feed to reap extra profits. But this price levels will not last for long and prices been on a steady bearish move for a while. I am shorting LH.

    Aug 13 11:26 PM | Link | Comment!
  • My July-14 Strategy Review

    OK, it is time to review my forecasts for June and July.

    Soybeans - my plan to short beans brought me good profits. Closed position on 1 of August as options I sold earlier lost most the value and keeping position open was meaningless and I bought them back. I still have bear spirit inside me but I want to see WASDE, it is only a few days away.

    Soy oil - prices declined as expected.

    Cotton - same story as above.

    Cocoa - here I am kind of busted for now. Instead of expected decline cocoa added another USD100 to USD3,200. I keep my shorts open and I believe market lost touch with the reality. In brief - we can see news about rising US and Asia grinding numbers but EU grinding numbers declined much stronger and if you add up all grinding numbers for EU, US, and Asia you will see that there is a quarter-on-quarter decline in grind numbers. So demand is not that "out of control" as some like to say. Also, weather news and crop reports from Africa point at good crop numbers and good prospects.

    Coffee - I made good money shorting coffee but last days of July brought me some headache with unexpected price jumps. I still believe that coffee prices should not exceed USD2.00 in a medium term and I do not think market is right when they go wrecklessly bullish simply because some analyst and an export company issued bullish estimates in generally neutral-bearish environment.

    Natural gas - prices dropped as expected. Summer is bad time for bulls, especially mild summer.

    Heating Oil - I opened bullish position in November contract a couple of cents ago. Maybe I was wrong, time will tell.

    Gasoline - still shorting it.

    Aug 05 1:39 AM | Link | Comment!
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