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Expat finance professional living and working in Hong Kong.
  • My March-15 Strategy

    Here is my plan for March:

    NatGas - I opened first longs during last week of February and I continue to build position. Historically, this is good time to open longs. COT report is also in favor of bulls. This market has been controlled by bears for a long time and bears party has gone too far. Warmer than normal times are behind and lately we had very cold weeks, they deplete storages at fast pace. Also, cold times will continue into March so withdrawals can be significant for coming couple of weeks. I am not saying that storages will be depleted completely but the damage will be significant and prices are not fair. OK, let's bring some numbers in for exactly this time of year - in 2012, when reserves of natgas were 30% higher, prices were at 2.50 level. Last year, when reserves were 30% lower than they are today prices were at 4.50 level. So, a very simple extrapolation points at 3.50 price levels.

    Cocoa - I have my shorts open and position has bled during February. At the same time early days of March is time for local peak. Assuming that Harmattan is over and main crop is good there may be potential reduction in bulls activity. I overestimated effect of bearish grind reports so I do not exclude that some options I wrote may expire in the money.

    Cotton - I am bearish cotton in March. I do not know if this market is in a long-term bearish phase but recent fundamental developments - poor cotton reform in China and India selling its reserves, point at price weakness and reluctance of foreign buyers to buy at high prices.

    Lean Hogs - I continue thinking that herd population will keep on incresing with cheap grain feed and market recovery after last year's PEDV. That epidemy is a distant memory now but market lost only a fraction of that price increment - pork for June delivery is still higher than 80 cents. I believe that shorting June to 65 cents is reasonable.

    Coffee - if you followed weather development in Brasil than you probably know that this year is entirely different from the last year. Rains are plentyful and will continue for observable time. No wonder prices have been under pressure for a long time. Bulls surrendered nearly all gains of last 12 months therefore do not go wrecklessly short. This market is a roller-coaster and reversal may happen any moment. Shorting coffee now is a good seasonal trend too.

    At this moment of time I avoid two sectors - grains and oil. Grains have been in a bearish mode for quite a long time but we have two factors in play - crop planting and war between Russia and Ukraine. Starting from April Ministry of Agriculture will resume weekly progress reports and we shall know more. War of Russia against Ukraine can potentially harm both economies so shortages of corn and more important wheat are possible. Note weakened currencies in both countries - they won't be worried much to sell at lower dollar prices, they will still gain on exchange rate differences when they sell US dollars domestically. Beans is something unclear too - good crops in place but seasonal trend is used to be bullish this time of the year. Will it be the case this year? Who knows. Moving to oil I have the same advice - stay on the sides. Oil is very unstable these days - wild daily fluctuations are a new norm. Market has to decide which way it wants to go. Fundamentals do not matter much, politics does - I said this before and I say it now. Although my heart is with bears, my mind tells me that markets have no respect for fundamentals today and I prefer to wait. 10 mln weekly injection and in an hour prices add 2 dollars simply because some guy in Saudi Arabia says that demand is improving. Should he add another word - "NOT", market would crash. No one cares that for weeks inventories are at highest, they grow like mad and there is not a single sign of slowing this pace. This can be a bubble but I am not sure yet. First crashes in rig count numbers csame in late January. They say it takes 3 months for markets to see physical damage to inventories. So late April is the time for first realistic but yet imperfect conclusions. OK, I'll wait.

    Mar 09 5:41 AM | Link | Comment!
  • My January, February-15 Strategy Review

    OK, welcome back everyone. I must apologize for skipping February but as I mentioned earlier I was trying to keep myself away from trading during February which is not my favorite month since funds re-allocate their portfolios. And who knows what nests in their smart (or not) heads. Anyway I could not fully resists my pashion to trading and made some bets. Some went good, others did not. OK, here we go:

    RBOB - I was right to call a bearish phase in January but February was full of surprises. I should have paid more attention to divergence between March and April contracts prices and inevitable come-back. I did not make any money in the end. A zero game. Well... Next time.

    Palladium - seasonal tendency did not go smooth this year. Possibly reasons were weakening dollar, and already inflated price. Any way can't win all the money in the World.

    Lean Hogs - I was short and I was greatly rewarded. And I continue shorting the market. However I moved from April to June as price divergence is increadibly strong and June is much higher than April.

    Now about positions I did not announce:

    Cocoa - soon after bearish grind reports went live I opened short position which went fine until Harmattan brought a bull rally. Prices went up for 15 days in a line. It was an exceptional rally without respectively justified fundamentals. No, Harmattan was real and its effect on crops was without saying too but the effect of this hot dry wind was not that devastating. Generally, main crp is very good, soil is moist, current weather conditions are in favor of good development of mid-crop. I expect market to pacify within near time.

    Cotton - CT bottomed at 58 and made a nice comeback to 65. At this time (about a week ago) I reviewed COT report and noted that commercial users became rather bearish (although not absolutely) and funds made a strong comeback. Technically speaking the rally went too fast and too soon. From fundamental perspective India announced sale of its reserves and China could not implement reform to prevent own cotton producers from oversupplying the market. Also, US crop figures came and they were very healthy but market failed to acknowledge that. For now markets stay focused on several weeks of strong export sales (which were followed by two weeks of rather bleak numbers but it has not been considered yet) and there is uncertainty on planting area. Once things be clearer I expect reduction in speculative interest.

    Natural Gas - I was shorting NG since June and a couple of days ago I reversed my stance. (a) COT picture is rather bullish and promising, (b) seasonally this time is right to open longs, (c) technically I believe that 5th wave down is now complete and we are in correction phase higher. Elliot theory for NG often brings good results.

    Feb 27 10:03 PM | Link | Comment!
  • My January-15 Strategy

    Happy New Year everyone. I had no plans to initiate big trades when funds are about to rebalance their portfolios but a few items are on my list:

    RBOB - I continue to believe that petroleum group is in downturn and will stay there for some time. Among all the petroleum products gasoline options offer best premiums to option sellers at the moment.

    Palladium - I expect bulls rally to continue. If things go the way I want them to and if they do follow this path I will increase the position.

    Lean hogs - latest Hogs and Pigs report shows increase to hogs inventory as well as numbers of hogs slaughtered compare to last year figures so market is well supplied and prices should continue its down trend.

    That's it for now. I am interested in my favorite plays in coffee and cocoa but I prefer to wait and watch weather and processing reports. Bearing in mind coffee explosion last year I urge everyone to be careful. Last year rush began during last days of January. Bear in mind that last year demand outpaced supply and deficit was covered by reserves. Should this happen this year too the prices would explode a big deal. Grains group is not my favorite at the moment because of lack of news - US is done and US will be off the table for some time. Come February-March and we will know more about Brasil and Argentina crop conditions.

    Jan 05 4:37 AM | Link | Comment!
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