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My December-12 Strategy

Christmas and New Year are approaching us and I have a long shopping list in December. Here it is:

Soy Oil - I keep on holding it and I may think to increase my holding if I have spare capacity and the price goes north. COT is bullish and from historical point we often had stronger prices in December.

Soy Meal - November is a time when soy bottoms. Plenty of past year experiences prove that. But assuming this year madness about soy I am cautious - from what I read in different agri news they planted soy literally everywhere in South America and there potentially can be a risk of oversupply. That is why I do not risk buying soy contracts now but instead I bought soy meal as it gives nearly twice less exposure than usual soy contract and soy meal price behavior incredibly correlates with soy price behavior.

Copper - nearly all indicators of my model tell me to go long in December. The question is when? Timing is a tough thing.

Heating Oil - I remain bearish on HO though I closed my shorts yesterday on the wave of price fall - I do not like weather pattern at the moment - it looks like coming week-two may bring cooler temperatures so I prefer to wait till weather picture becomes a bit clearer. But overall I am bearish and I think I will reestablish my shorts within a short period.

Lumber - I am bearish but I am carefully bearish. OK, bearish news first - commercial users of lumber are bearish. People in the industry, the insiders, are bearish - this is current state of things. Second, out of scarce bits of info I found that US sawmills have been incredibly productive during recent weeks/months - another sign of bears in town, market maybe very well supplied at the moment. China is next factor - Chinese reduced their timber buying across the board not only from the US but from Canada, Australia and New Zealand as well. Next factor is a seasonal downturn of construction industry - usually they build less in winter. Moving to bullish news - over last years market has been terribly undersupplied with new houses. OK, we all know about property bubble but this is not the point - the point is that starting from early 2007 the number of new houses in the market dropped to very low levels. Not from late 2008 or early 2009 as some may think - construction of new units greatly reduced in 2007 and had been at low levels ever since. Now the story is coming to the end and new permits number shows steady growth. It usually takes about 6-8 months to build an average house for 1-2 families. So medium to long turn lumber will be up but it looks like currently we are experiencing a retracement. On the side note I am surprised why so many market players overlooked the fact that builders literally started to "short" the market in 2007 - they would not downsize their business unless they would have known it was time to stop because of evaporating demand... Jim Rogers and Marc Faber are correct when they say that even big names in the market do not know much about their job.

Natural Gas - I am bullish at this very moment (surprise-surprise). It is more like my gut is telling me that in the short term the weather will get cooler. Also, price falling from USD4 to USD3.5+ was too fast so bulls' nemesis may come any moment. But overall I am carefully bullish - Feb-Mar are by far better times to long NG from strategic standpoint.

Palladium - one of the strongest seasonal tendencies I came across was to long PA in the very last days of December. So I may initiate longs in the very end of December. But at current state of things I am preparing to short it - today market signals a nearly perfect shorting opportunity and I am eager to see COT report on Saturday morning to decide on my course of actions. So the plan is - short now (most likely) and long in the last days of the year.

Sugar - I continue holding longs. My target is 22+ in March contracts. I hope to see that in Dec-Jan.

Question marks:

Cocoa - COT picture is getting closer to bearish. We shall see. From supply side there is news of smaller crops this year but they are not critically smaller. From the demand side there are worries that economic issues in the US and EU had a strong impact on the market. It is not clear at the moment but cocoa shorts are on the radar.

Crude Oil - I get signals that markets may be bottoming very soon but they are not there yet. Waiting for further confirmations.

Cotton - I have just closed my longs on the recent price spike and I want market to pullback a bit before I re-initiate longs. Thinking and hesitating here.

Coffee - coffee is cheap but I want to see speculators to start buying or strongly reducing short position before I move.

Orange Juice - I will be shorting OJ as soon as I see funds slow down buying OJ. I do not want to be squashed by funds and I believe that markets are at their interim top levels now.

This is my plan so far. The list can be extended further if commodities which are not on the list show strong movement but for now I do not expect to see anything striking. Markets are somewhere dazed at the moment watching a resolution of "fiscal cliff" - another trendy term that destined to accompany "bazooka", "super-committee" and others used to cover-up inability of authorities to make strong but painful steps to cure economic cancer. Paracetamol won't cure cancer, boys and girls! You need to stop wars for oil and democracy around the globe because they burn taxpayer's money and bring back production from China and Vietnam to EU and States - this is not natural when one part of the World produces everything for another. This is a model of self-destruction - I was born in ex-USSR, lived 4 years in EU and now live for 8+ years in East Asia, I say so because I can see differences. Let me tell you - East will consume West if West would be so relaxed. Hard-working and forward-thinking Westerners are seeking opportunities in the East because this is the place there where money is being made. "With globalization, the big [countries] don't eat small, the fast eat the slow. (c) Thomas L. Friedman, NY Times journalist.