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Elgrey
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Expat finance professional living and working in Hong Kong.
  • My June-13 Strategy

    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.

    Jun 07 4:01 AM | Link | Comment!
  • My May-13 Strategy Review

    Knock-knock! Summer is knocking on our door! Let's review May results and put on swimming gear.

    Soy Oil - I give up waiting for rally. Officially. But only for now. Although COT points at coming rally it will only begin after we get negative news from agri fields. I understand now that bearishness of speculators was a precaution only - they sold their longs and opened shorts while anticipating first good news from fields. It is human psychology - in the begining of any event (be it an agri season or a financial year) everyone is optimistic and future is rosy. So now investors are awaiting for good news about crops and prepare to see prices falling. What supports this stance is increased moisture in main agri states of the USA. Drought is not severe anymore, in fact drought persists in western part of States, East and Central are doing OK. Late planting season fears have evaporated, now the lag between this year planting pace and historical one is minimal. In any event prices for BO were slowly decreasing in May losing 1% between 1 and 31 of May.

    Cotton - during May I reviewed my positioning towards CT and changed my stance from bearinsh to neutral. I re-engineered my CT instruments from covered puts into short out-of-money puts and calls. Currently I bet on prices to stay within 80-87 cents in July contract.

    Natural Gas - I continue shorting it and it seems that now my patience is likely to be repaid - NatGas lost 40 cents in May and I expect further drop.

    Silver - I am in camp with bulls though it looks like it may take longer than anticipated. For that ocasion I purchased puts back in April so even if I lose, I will preserve my investment.

    Heating Oil - while watchting it to go down I did not expect it to be in May rather I was thinking of neutral or slightly negative price trend. I was selling out-of-money puts and calls betting on neutral or slow price behaviour and I was correct. Same strategy I followed with HO brother - RBOB where currently market is more or less equally devided between hedgers and speculators in terms of longs and shorts meaning no dominant force and stable prices.

    Coffee - it fell from 140+ to 120+ as I predicted. I did not buy it cause I missed the moment working on a project at my main job. Coffee is too volatile and requires close attention which I could not afford at that time.

    May was not bad for me. I was not very active and I made some profit. Isn't it beatiful - work little and be paid? Let's move into summer.

    Jun 04 11:25 PM | Link | Comment!
  • My May-13 Strategy

    In May I am interested in following commodities:

    Soy Oil - I talk about it for last couple of months and still no luck. As I write this post the positioning of funds is on extremely bearish levels - I checked past years all the way back to 1995 and funds have never been so bearish. I do not believe that such situation is going to last for long. I can see pressure from palm oil but it is not that enormous to justify such bearishness. Neither we have a super dominance of supply over demand in soybeans market. So stiff upper lip and see what comes next. What makes me worried is USDA saying that they forecast price to be within 48-50 cents for the rest of the season. But judging the amount of shorts accumulated by funds, there should be a bounce to 52-53 levels once they begin covering shorts.

    Cotton - I continue shorting it. USDA forecasts 70+ cents price range for this marketing year, COT is still bearish and prices have gone down from 92 to 84 as of right now. Before my target price range was around 70-75 cents. Now, after late plantings caused by bad weather I will consider leaving the trade within a range of 75-80 cents.

    Natural Gas - I continue shorting it despite all the rallies. OK, confession time - I was early to jump in by 2-3 weeks. But at that time all the indicators were saying that market reached the top. It is incredibly difficult to predict tops and bottoms for NatGas - this is one of the most volatile commodities among all of them. Anyway COT is still bearish, injections season has begun, volatility is monstrous - we saw price levels of 4.50 about 2 weeks ago, a week ago NG was below 4.20, a day ago it touched 4.50 again and lost 15 cents as of now. EIA weekly report is due in 8 hours and it can turn the tables. Next item to consider is usage of coal by power plants - the usage of coal has increased as price for NG accelerated meaning that demand for NG is getting softer. I read monthly NG report by EIA and noticed something interesting - in Jan-Feb of 2013 production of NG was 2 percent less than in Jan-Feb'12 but there is 45% (430 vs. 756) less NG rigs today comparing to last year Jan-Feb. This reminds us that not all rigs are equal and that a large portion of NG comes from oil rigs the number of which is 1325 vs. 1241 (average for Jan-Feb of 2013 vs. same period of 2012).

    Silver - I wrote a lot in my previous posts so basically there is nothing else to add.

    Question marks:

    Heating Oil - HO is back on my radar. Prices have fallen a great deal but I expect them to reach USD2.60 levels before opening longs.

    Corn - Speculators have accumulated record short positions, hedgers are at record long levels. I have seen this case before so I do not plan to buy corn today but I am watching the market for near-term developments. OK, what bothers me now - high volatility which translates into high price of protective puts. Next thing is excessive pessimism about poor planting speed - it does not mean much yet. It may translate into troubles later but it is too early to judge now. Weather (drought) is next - there are heavy rains now but will they last long enough to end the drought? I guess that by the end of May we will know more. Let's wait.

    Coffee - The end of May is always a good shorting opportunity but will this year be the case? Prices have been in a steady negative trend for many months. I cannot ascertain myself whether there is any more potential left for bears.

    Live Cattle - I am still watching it and keep asking myself whether market capitulated or rally will be soon?

    I am not Jewish but I always regard them as one of the smartest people. When I look at my recent trading decisions I think of rabbi Shlomo Riskin saying "When you're one step ahead of the crowd you're a genius. When you're two steps ahead, you're a crackpot." I was too early to leave a few recent trades and to start other ones. Doing that properly could earn me a lot. But bad times always pass, learn from your mistakes, stiff upper lip, and move on.

    May 02 4:02 AM | Link | Comment!
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