Commodity ETF Alert July 2009 Portfolio Update

July 28, 2009

There it was… on the front page of the Wall Street Journal.  The headline screamed out, “Traders Blamed for Oil Spike”!

The US government and CFTC are now backpedaling on prior findings.

Last year the investigation into high oil prices showed normal market forces were at work. Now, with a new president in the White House and a new political party controlling Congress, the CFTC has done a complete 180.  They now blame speculators for last summer’s spike in oil prices.

Normally I wouldn’t care about the hot air out of Washington… but this finding is very dangerous.

Why?

Well, Congress is looking for a scapegoat to pin the spike in oil prices on.  The usual feast for the lions – hedge funds and speculators – isn’t good enough.  Our elected officials have dragged the usual suspects through the mud… and had them tarred and feathered.

But they want more blood…

Next week the CFTC starts hearings about curbing speculation in the markets.  They claim it will keep food and energy prices lower.  We all know that’s a lie.

What they’re attempting to do is limit our ability as investors to profit from a lucrative market.

In short, the CFTC is looking for ways to eliminate commodity index investing.  Essentially, the very products (ETFs and ETNs) we trade could be at risk.  Instead of welcoming the additional liquidity and price discovery we bring to the market, they’re accusing small investors (you and I) of manipulating the markets.

The CFTC calls us evil.

Funny.  The CME who runs the commodity exchanges says they see no evidence of manipulation.  The FSA (the British Financial Regulator) doesn’t see any indication of manipulation.  Remember, the FSA oversees the London energy markets.  Makes me wonder what’s really going on.

This whole act stinks of political grand standing.

It’s another opportunity for the peacocks on Capitol Hill to strut their stuff.  And, it just makes me sick.

If you know your local senator or congressmen, call them up and encourage them to leave the free markets alone.  Tell them not to shut the little guy out of the commodities market.  After all, the system’s worked for hundreds of years… why mess with it now?

Let’s take a look at our open positions…

Position Updates

. . . iPath Dow Jones AIG Nickel ETN (JJN) – HOLD

This month we put out a trade in nickel.  Everyone should have had the opportunity to establish a position.  In just a few days, we’re up more than 17%. Congratulations. We’re moving this trade to a ‘Hold’.

China’s economic numbers are getting stronger by the day.  It’s an early sign demand for commodities will start growing again.  Nickel’s a key commodity and will be in high demand.

. . . iShares COMEX Gold Trust (IAU) – Buy up to $96.00

Gold touched a low in early July, then started heading in the right direction.  Watch the inflation indicators like CPI numbers.  They’ll have a big impact on gold in the next few months… especially once the economy shows signs of significant recovery.  We should keep moving higher so hold tight.

. . . iPath Dow Jones–AIG Livestock ETN (COW) – Buy up to $32.00

Livestock prices have been all over the map recently.  A combination of volatile dairy prices, grain prices, and the swine flu are all weighing on cattle and lean hog commodities.

We had a nice rally at the start of the summer, only to watch it fizzle.  The $27.75 level seems to be a strong point of support for our Livestock ETN.  I’m watching the price action closely.

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

In the June Issue we said, “If you don’t already have it in your portfolio, buy it up to $32. The run in copper is far from over.”  How right we were!

Copper bottomed out around $30 in early July.  Then it jumped as more positive economic news out of China accelerated demand.  As I write this, we’re trading over $35… that’s a 22% gain in just three months.

We’re well above the buy-up to price, so we’re moving Copper to a ‘Hold’.

. . . iPath S&P GSCI Crude Oil Total Return ETN (OIL) – HOLD

In early July, oil traded lower amid concerns the second half economic recovery might be delayed.  Our ETN moved from the $25 level down to $21.  I told you in the last update I wasn’t worried… and I’m not.

Demand continues to build, and China keeps growing.  Our trade bounced back to the $24 level… and I still think we keep climbing higher.

Remember, our price target is $27 on the OIL ETF… continue holding for bigger gains.

Action To Take

• Move Copper to a ‘Hold’
• Move Nickel to a ‘Hold’

Category: Commodity Trading