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

    Decemeber is over. Review is here:

    Grains group (W, C, S, SM, BO) - behaviour was contradictional - W peaked in mid Dec, C was on the rise, S, SM, BO stuck in ranges with some sort of a rally around Xmas. Can't tell if it was a one night stand or something yet to become. BO options I wrote expired worthless and I retained premium. As I said before - market was non-directional, a question mark.

    Oil group (CL, HO, RB) - oil lost even greater deal than I expected, more than 20% in December. I did not expect such a magnitude and I benefited from it more than I expected. Such move made me change my mind - my short calls are very deep out of the money so I do not want to buy them back and will hold them into 2015 until expiration.

    Natgas - here I was wrong and I paid my price. Natgas in winter is a hard business.

    Coffee - minus 10% in December as expected and good profits.

    Cocoa - here I was kinda wrong. Cocoa was moderately up and crushed just before the New Year. But long-term I am still bearish. My options will expire on 2nd of January and I hope to retain all the premium with me.

    Hogs - minus 10% again and counting. Pork is in excess these days. Just as I wrote earlier.

    Cotton - I did not initiate the trade as I was hesitating all the way. I was correct - market moved higher and a month ago I said it would go down.

    PA - I opened longs on 30th. It is too early to judge but remember that for many years palladium has offered a good bullish opportunity around Xmas until 2nd half of January - 1st half of February.

    A couple of posts below I wrote that this year was a year of a grim bear for commodities. So this is final result:

    Goldman Sachs Commodity Index lost 33% in 2014,
    Dow Jones Commodity Index lost 17% in 2014,
    My proprietary fund gained 119% in 2014.

    This year my top 5 earners are:
    1. Coffee
    2. Cocoa
    3. Soy group
    4. Natgas
    5. Hogs

    Although most of my calls were bearish I do not think we are in a full-scale bear phase of the market. I just do not know. Making any call, be it bullish or bearish, should not be based on overall market phase but on individual market fundamentals:

    - Why would one expect higher grains and cotton prices if crops were good in States and South America? And speaking of cotton China still keeps huge reserves.
    - Oil markets are in a firm grip of overproduction and politicians. It will take Putin to change his attitude (which won't happen overnight) and Islamic State to cease to exist before trend changes. For now market seem to switch from economical factors to politics.
    - US weather was mild all the way and heating demand was weak thus reducing consumption and prices of natgas.
    - Cocoa was overheated since last year with all this talk of super-demand. And numbers that supported it were only moderately bullish, thus pullback was only a matter of time.
    - Coffee markets shoot up incredibly in Feb-Mar but fears of drought and drought damage were overly exaggerated (as always happens with markets) and, again, pullback was only a matter of waiting.
    - Sugar production was slightly better for the whole year except for last weeks, so prices should go down even more than they did last year, right? Yes, that's right and yes, this what happened.
    - Hogs were overpriced after 2013-14 PEDv outbreak, so again - a pullback was only a matter of waiting.

    As you can see fundamentals were were different in each particular case and should they develop in some other ways the markets would have behaved differently too. Therefore I do not believe we are in fully-scaled bearish phase. But, let us look from a different angle - if all components of the market will be in a down turn, investors might lose their interest to commodity sector as such, and then we will be in bearish phase! Or we maybe there already, who knows?

    Let us turn this page, this chapter is finished, new ones lie ahead.

    Happy New Year!

    Jan 02 4:25 AM | Link | Comment!
  • My December-14 Strategy

    Winter is here with us. Hope you guys enjoy great weather full of skiing, ice-skating and building snowmen together with your kids. Something I haven't done for many years cause it never snows in Hong Kong where I live. OK, let's get down to business and plan our investments for December.

    I want to make a note that I do not suggest any large bets to be transferred into past second week of January as funds will be rebalancing their portfolios during January and first week will be still sleepy as many of them will be on vacations but second and third weeks could be rollercoasters. So if you trade leveraged instruments like futures, options or leveraged ETF you may have second thoughts about staying on the side lines during first weeks. I hope I will be smart enough to do so. Can't win all the money in the World anyway. So, let's roll...

    Grains group (W, C, S, SM, BO) - right now this market is a question mark. I would suggest to stay away or slightly bearish. The crops are good, major market trend is bearish but beware of Christmas rallies. They are unexplainable. I do not expect any strong ones but let us be careful. I have a short position in soyoil.

    Oil group (CL, HO, RB) - political tensions remain uncleared so I see no reason why markets should recover. However, markets have been terrible oversold during last days after OPEC failed to act. Technically speaking daily Bollinger Bands were breached at lower end so a pullback is a possibility. I do not have any position yet but I am thinking of a modest bearish position. And I will not take it into 2015.

    Natgas - I have a short position and I think I will change it into a strangle. I do not think that deviations from USD4.00 be long-lived in December.

    KC - I keep on my bearish stance in coffee - rains continue to pour in Brasil and weather is very favorable. Keep on selling rallies.

    CC - cocoa crop is good this year and there are talks in press that shortage fears have gone to far. This translates into understanding that funds are bearish on cocoa and unloading cocoa. I see no reason to stay away from this opportunity.

    CT - cotton crop is good this year and there are no big news from China demanding huge amounts of cotton. Stay short.

    HE - hogs usually decline after Thanksgiving and COT report tells us that commercial users of hogs are bearish. These two add-up into a bearish solution for hogs issue.

    PA - I want to remind you about Christmas rally in palladium market. Watch technical indicators carefully.

    AC/DC - yeah you heard me right. New album of this superband will be released on 2nd of December. And what is also important is that this album will possibly be the last one considering the age of these guys. So if they perform somewhere around your area - do not miss the chance. Maybe this will be the last.

    That's it for December. Stay sharp.

    Dec 01 1:20 AM | Link | Comment!
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