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Expat finance professional living and working in Hong Kong.
  • My June, July-15 Strategy Review

    June and July are history now and it is time to draw the line and count gains and losses.

    Wheat and Corn kicked the hell out of me when they rallied. I did not have huge positions but I took some pain - corn stocks figures and non-stop rains in corn I-states were grim for bears so I decided not to try my luck and booked losses. At the same time wheat was a follower, its fundamentals were not that hampered, in fact they remained bearish and its uptrend was nothing but overexaggerated reaction on corn and soybeans bullish figures. So I kept bearish wheat position and closed it after uptrend finished and booked profit.

    Soy Oil - I short it and enjoy the downtrend in it.

    Coffee - pretty much the same as soy oil.

    Among the bets I did not announce back when I planned my strategy for June and July are sugar, gasoline, and hogs.

    Sugar - I am short sugar cause world production figures come very impressive so stocks won't be depleted anytime soon.

    Gasoline - this summer US gasoline production hits new records - over 10,000 thou barrels per day. This is a blast - refineries work like it is no tomorrow and hurry to refine all the oil in the World. This was bearish factor number 1 - supply explodes through the roof. Bearish factor number 2 came after analysis of crack spreads. It appears that present situation is very much acceptable for refiners as gasoline spreads are very sexy. So what does this mean to us, speculators? In Jan-Feb all crack spreads (HO, RB, 3-2-1 spreads) were very poor and it translated into bullish rally - all commercial (drillers and refiners) users did not want to tolerate falling prices anymore and joined forces and changed the direction of the market. Today situation is different - oil is much cheaper in relative terms than gasoline meaning that refiners' profits are safe and they can accept the case of falling oil prices. So gasoline prices have more room to fall.

    Hogs - I am bullish hogs. Yes, that's right - there is finally a bullish bet in the dark kingdom of bears. Here is the reason - hog prices fell 50% from last year and 20% from 2 years ago. Last year industry was hit by PEDv, prices exploded but once PEDv epidemics was over - stocks recovery gave us a huge bearish rally. But the situation now is more like it was 2 years ago with major difference - prices are much, much lower today than in 2013. Besides, cattle prices are way too high now. This is another example of broken market balance. And balances always tend to be restored - nature of things.

    This is it for June and July. I will post my thoughts about future month or two in near time.

    Aug 02 9:12 PM | Link | Comment!
  • My June, July-15 Strategy

    My apologies for skipping May. If only I could load it anew like a saved computer game. Well, what done is done. My big misfortunes were cocoa and hogs - both continued rallies against me and I was taking pain waiting for reversal to quit positions. I managed to do so in hogs without much damage but cocoa drained plenty of my blood. I did not expect so much resistance from bulls but there was the whole chain of misfortunes - first grinders did not confirm drastic drop in demand, next came trustworthy data from researchers about falling production in Ghana. Then after markets digested it and started strong reversal, there was Ghana COCOBOD who came out confirming the researchers figures and markets spiked again. This third move confirmed that market is using any excuse to move higher no mater what - news about good weather in Ivory Coast and good production numbers from them were ignored completely. Plus there started to come worring whispers about slowing Ivory Coast arrivals (not yet confirmed) and dollar weakness continued. This market will reverse but when? Timing is a big question for a derivatives trader, I had two options - roll and sit waiting for reversal or take pain and release arrested margin and trade elsewhere. I chose the latter. Do not know how long this rally is going to take, cocoa market can be cornered because of its small size plus we will have more certainty only after realistic production and demand numbers come which is not going to happen this or next week.

    OK, enough of self-castigation. In June-July I am looking at:
    Wheat, Corn - I have been selling rallies. Sawings, conditions, export sales - everything is in favor bears. But - funds are very much short this market so should they unwind - the damage may be harsh. Therefore I do not have a big heart to have large positions.

    Soy Oil - I am shorting this market. Seasonals are very supportive. There was a strong spike in prices after proposed legislation on bio-fuels and market reaction was too much and too fast. I have a feeling that market will sell this rally.

    Coffee - again stocks, weather, seasonals are bearish here which makes me a bit worried (enjoy it while it lasts cause it never does) so I'd rather sell rallies carefully.

    Natural Gas - same as coffee with the exception that today I have no position but looking for a selling opportunity which is a possibility right now.

    I am interested to see developments in soy and cotton markets but I am on the sides cause fundamentals do not provide me comfort in either direction.

    This is it for June and July. Stay tuned.

    Jun 11 1:35 AM | Link | Comment!
  • My April-15 Strategy Review

    April is over. Results:

    Wheat - as expected it fell hard - minus 10%.

    Soybean Meal - fell too but less dramatic. Again, as expected.

    Cotton - overall prices rose but trade is very choppy. I've had a short position and size was quite modest and I have no intention to extend or liquidate it. Written calls lose its value gradually.

    Coffee - up and down, up and down - prices stuck in the range. This is OK for me - as an options seller I benefit when prices go in my direction or stuck in range or even if they go slightly against me. This is a forgiving trade style.

    Cocoa - added more than 10% on less than expected fall in demand from grinders. This was my mistake.

    Hogs - another mistake. Bulls were charge this month.

    I did not write about corn in my previous article but I opened bearish position soon after beginning of April and benefited from that.

    Overall, the month was not great because of substantial hits from cocoa and hogs bull rallies. I keep on my bearish positions and I believe that rallies in hogs and cocoa will fade soon. Though it was my mistake to ignore seasonal rally in hogs as I thought good fundamentals from suppliers end would cap it. Cocoa another time proved to be a volatile thing. But looking at fundamentals and monthly charts I do not expect this upturn to be long-lived either.

    May 03 11:32 PM | Link | Comment!
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