Commodity ETF Alert January 2010 Portfolio Update

January 26, 2010

The Big Question In Our Minds…

There’s one question on the mind of commodity investors around the world.

It’s a simple question.

How long can the rally in the U.S. Dollar last?

But the answer isn’t so simple.  There are a lot of factors driving the strength in the dollar.

One of the main factors is this…

There’s a growing fear in the air in the European Union (EU).  Unsustainable debt burdens of member countries are causing investors to drop the euro.  Euro weakness means dollar strength.  And the dollar strength is causing weakness in many commodities.

Whether it’s gold, oil, silver, or wheat, there’s been temporary weakness over the past month.  But, that last sentence contains the key word… temporary.

You see, this rally in the dollar won’t last forever.  The dollar is a fundamentally flawed currency.  In the long run, it has to lose value.  But in the short term, other currencies are more flawed than the dollar.  Like the euro…

But this can only last so long.  When issues get ironed out in Europe and the fear subsides, look for commodities to rise as the dollar returns to its downtrend.

So this is why we ask, “How long can the rally in the dollar last?”

It’s a good question and not an easy one to answer.  A short term catalyst for a move in the dollar is the confirmation of Ben Bernanke.  If he is reconfirmed as head of the Federal Reserve this week, the dollar could weaken.  Why, you ask?

Bernanke’s easy money policies have led to massive amounts of money printed out of thin air.  Continued management by Bernanke and there’s likely to be more of the same.

The bottom line is this…

The dollar will eventually continue its downtrend.  And when it does, we want to profit by being long commodities.

You can’t ignore that the population of the world is growing.  Emerging economies are developing and demanding higher living standards.  Higher standards put more demand on global commodities.  Stuff like oil, copper, aluminum, and coal.

Rising commodity prices are written into the cards…

Now, let’s take a look at our open positions…

Position Updates

. . . . iPath S&P GSCI Crude Oil Total Return ETN (OIL) – Buy up to $25.50

The dollar rally, as well as bearish inventory numbers last week, sent crude down.  But keep in mind, weekly inventory numbers are a very short term view.  We’re looking at the longer term trend.  And that trend is still up… keep holding.

. . . . iPath Dow Jones-UBS Aluminum ETN (JJU) – HOLD

Aluminum (JJU) has pulled back slightly over the past couple of days.  There’s support at the $30 zone.  A test of this level could give us a substantial bounce.  Keep holding for future gains…

. . . . iShares Silver Trust (SLV) – Buy up to $17.00

Continued dollar strength is keeping silver at bay… for now.  There’s support at the $16.75 area with strong support at $16.  Consider buying at these important support zones.

. . . . iPath DJ AIG Natural Gas TR Sub-Index ETN (GAZ) – Buy up to $15.50

We’re seeing TV ads starting to pop up relating to the natural gas industry.  The ad is put out by T. Boone Pickens.  He’s pushing for H.R. 1835, The Nat Gas Act.

You know our stance on Nat gas.  It has a huge future ahead of it.  When Congress passes this bill (hopefully by Memorial Day), Nat gas should trade much higher.  Obviously, passing the act means increased demand for Nat gas.  Congress would be crazy not to pass it… but of course, Congress already is crazy.  So who knows…

. . . . iShares COMEX Gold Trust (IAU) – HOLD

Gold continues its pullback as the dollar rallies.  There’s strong support at the $1,060 zone and again at $1,000.  Some believe the rally in gold is over.  They couldn’t be more wrong…

. . . . iPath Dow Jones–AIG Copper ETN (JJC) – CLOSED

In case you missed it, we hit our profit target for this trade.  JJC traded as high as $48 in recent weeks, giving everybody ample time to exit this trade for a return of over 55%.  If you followed the plan, congratulations!  We’ll revisit this commodity in future issues.

. . . . iPath Dow Jones-AOG Coffee ETN (JO) – Buy up to $42.50

JO is stuck in a trading range.  But, it’s a tightening trading range and that means one thing.  A breakout in coffee is in the works… If you can pick coffee up at the bottom of the trading range around $38, do so.

Action To Take

• None at this time.

Category: Commodity Trading