The S&P has been very volatile these past few sessions and things are not slowing down. The range in the action (15-12-2014) in the S&P has been from 1,982 to 2,018. After starting the day more than 10 points up, the market plummeted to 1,982 and now seems to be making a comeback. The dollar is behaving exactly how I described in my last article. It seems to be trading in tandem with the equity markets. It started the day strongly as the market was up but then weakened as the stock market weakened.
This is worrying for the dollar. If we do get a mini-crash type event in the near future, the U.S. dollar may not be the safe haven it once was. From observing the market action today, not many equities or commodities provided a safe haven when the market was tanking but there was one shining ETF that has been trading exceptionally well over the last couple of weeks. Let's go through why we are adding the Teucrium Corn Fund (NYSEARCA:CORN) to the 1% portfolio.
First of all, let's look at the fundamentals. As you can see from the chart, this ETF has more than halved in price since July 2012.
I have been watching this ETF very closely since October 2014 and now believe it printed a firm intermediate bottom at $22.62 two months ago. It is trading at $27.44 and was one of the few commodities that was up yesterday in the face of a 20 point drop in the equity markets. Gold & Oil sold off hard and bonds only rallied slightly before ending the day negative. Moreover, as U.S. bonds are tied to the dollar, neither of them will probably be the safe haven they once were. Corn also gives us more diversification in our portfolio. It is an agricultural commodity and it rallied today as Gold and Oil sold off hard along with equities. Diversification is crucial to ensure longevity in our 1% portfolio.
Jim Rogers, the famed investor believes agriculture will be a massive boom area in the future as food shortages are occurring and nobody seems to want to work the land. Therefore we are going to buy the Corn ETF for $27.44 for the 1% portfolio. Again, keep the position size small.
So why corn and why now? Well, this commodity has shown considerable strength in the face of falling oil prices. Falling oil prices usually directly affects ethanol negatively as both oil and ethanol are competing energy sources. If oil keeps sliding, corn will have to be affected in some way for ethanol to remain competitive (ethanol is derived from corn). On the contrary, when oil finally bottoms, ethanol and corn derived products should rise along with it and that's what I am banking on here. If corn can hold up this well in the face of plummeting oil prices, it could flourish when oil prices rebound.
Moreover there are other factors that are playing in our favor. The U.S. produces more than 40% of corn worldwide so corn investors watch this market very carefully. Corn prices plummeted this year due to record corn crop forecasts in the U.S. but that all changed a few months back when federal forecasters in the U.S. predicted a smaller 2014 crop. Prices immediately began to rally and were helped by the Ukraine situation where problems with Russia have definitely affected the corn crop there.
Sugar is also on my radar for this portfolio, but it doesn't seem to have bottomed yet like corn (see chart). This commodity is nearly 80% off its all time high so when I believe it has bottomed, it definitely will be added to the 1% portfolio.
Updated Portfolio (15-12-2014)
Open Positions (Position size kept Ultra Small)
|GDXJ - 19/11/2014||Sold 25-DEC26 Naked Put||Open|
|UNG - 20/11/2014||Sold 21-DEC26 Naked Put||Open|
|USO - 25/11/2014||Sold Jan02-27.5 Naked Put||Open|
|USO - 10/12/2014||Sold Jan16-22 Naked Put||Open|
|MCD - 11/12/2014||Sold Jan15-95 Covered Call||Open|
|KO - 11/12/2014||Sold Jan23-43.50 Covered Call||Open|
|K - 12/12/2014||Sold Jan16-67.5 Covered Call||Open|
|AXP - 11/12/2014||Sold Jan 09-96 Covered Call||Open|
|CORN - 15/12/2014||Bought Stock - 15/12/2014||Open|
|GDX||Bought Stock 09/12/2014||Open|
|MCD||Bought Stock 25/11/2014||Open|
|KO||Bought Stock 25/11/2014||Open|
|K||Bought Stock 25/11/2014||Open|
|TBT||Bought Stock 28/11/2014||Open|
|KOL||Bought Stock 25/11/2014||Open|
|AXP||Bought Stock 05/12/2014||Open|
|BDX||Bought Stock 05/12/2014||Open|
|IBM||Bought Stock 05/12/2014||Open|
Closed Positions (Per One Lot Of Options Sold)
|GDXJ - 17/11/2014||Sold 22-DEC26 Naked Put||$38 Profit|
|MCD - 20/11/2014||Sold 94-DEC26 Naked Put||$48 Profit|
|KO - 20/11/2014||Sold 43-DEC26 Naked Put||$21 Profit|
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.