Commodity ETF Alert March 2011 Issue
COMMODITY A SCREAMING BUY
Middle Eastern governments are dropping like flies. What started out as a mostly peaceful regime change in Tunisia turned into a major revolution in Egypt… and has exploded into civil war in Libya.
Who’s next, Saudi Arabia?
There’s no telling how far this crisis will go. Are we on the cusp of seeing democracy spread across the Islamic world? Is the era of the dictator coming to an end?
Only time will tell.
In the meantime, oil prices have been through the roof.
As of this writing, crude oil breached $105 a barrel. We haven’t seen these levels since the oil spike of 2008… before the recession hit.
You know what’s funny? I’m not recommending we buy oil at these levels.
In my opinion, oil prices have jumped because of fear-based buying. The fundamentals do not support crude oil at $105 or more per barrel.
In fact, we have oversupply of oil at the moment. Here in the US, they don’t even have enough storage space.
Here’s the deal…
The situation in the Middle East will settle down… maybe even sooner than we think. And when that happens, oil could plunge.
That being said, significant unrest in Saudi Arabia would shake things up a bit. It may cause oil to spike even higher. But, once again, it would be a short-term event. Regardless of what oil does in the immediate future, the longer term fundamentals point to a lower price.
And I have no intention of setting us up for a loss.
Fortunately, the Middle East crisis has opened up a much better and safer opportunity.
This opportunity is in natural gas.
You see, the Middle East blow up has shown us exactly why we should be using natural gas as a major energy source.
It’s super cheap and we have tons of it… right here in America.
Remember, about 40% of oil comes from the Middle East and Africa… where all the turmoil is now. If we eliminate those imports, the cost of oil should decrease significantly.
And, using natural gas has plenty of benefits.
You may already know natural gas is the main source of heat in American homes. But did you realize almost 25% of electricity in the US was generated by natural gas?
And, natural gas is a much cleaner fuel source than other fossil fuels. It burns 30% cleaner than petroleum and a whopping 45% cleaner than coal.
More importantly, natural gas can be liquefied… and used as fuel for vehicles. In other words, in has the potential to match petroleum as a major source of automobile fuel.
Here’s the thing…
An estimated 33% of imported oil is used in heavy fleet vehicles such as buses, delivery trucks, and utility vehicles. Switching these vehicles to liquefied natural gas could go a long ways towards ending our dependence on foreign oil.
And that’s why the Nat Gas Act is in front of Congress right now.
Basically, the bill would mandate the use of liquefied natural gas in heavy fleet vehicles. Many of these vehicles are operated by the government. And, they could be switched to liquefied natural gas fueled vehicles over time.
The Nat Gas Act is sure to pick up steam with oil prices spiking… not to mention the uncertainty involved with changing political regimes in the Middle East and Africa. There’s more incentive than ever to ramp up natural gas usage.
What’s more, prices of natural gas are dirt cheap. We have so much inventory right now, prices have dropped near to their production levels. And that’s simply not sustainable.
People aren’t going to pay $4-$5 a gallon for gasoline for long when a cheaper, cleaner fuel source can be had.
Here’s the bottom line…
Natural gas is ready to take off.
We’re on the verge of a major shift in the energy world. Americans’ dependence on foreign oil is set to diminish. Natural gas is going to take on a new level of importance. It’s a cleaner, cheaper source of energy… and we have tons of it right here on American soil.
What’s more, there’s now a better way to buy natural gas.
In the past, we’ve been stuck with ETFs suffering from the impact of contango. In other words, the future price of natural gas was higher than the actual spot price. Future prices move lower towards the spot price as expiration neared. And it meant the ETFs could lose money even in stable markets.
Fortunately, there’s another option… United States 12 Month Natural Gas (UNL). The benefit of UNL is it averages the prices of 12 consecutive months of natural gas futures. Since contango is only a problem in futures contracts nearing expiration, there is far less impact on the overall price of UNL.
It’s time to add natural gas to our portfolio at dirt cheap prices. Grab your shares of UNL to profit from the rising price of natural gas.
ABOUT NATURAL GAS
We’re in great shape to profit from the climbing price of natural gas in United States 12 Month Natural Gas (UNL). UNL is an exchange traded fund (ETF). The goal of this ETF is to track the performance of natural gas using futures contracts. As I mentioned earlier, UNL buys contracts in 12 consecutive futures months. By averaging these monthly prices, the impact of contango is significantly lessened.
TECHNICALLY SPEAKING
Take a look at the chart…
UNL is currently trading right around $31. As you can see, natural gas has pulled back from highs of over $48 a year ago. We’re going to take advantage of the dirt cheap prices. This may be our chance to get into natural gas at record low levels.
WHAT TO DO NOW:
United States 12 Month Natural Gas (UNL) is trading at $31.09.
Buy UNL up to $32.50 per share.
Our profit target is $48.00 or more.
Don’t forget your position sizing.
| COMMODITY | TICKER | CURRENT VALUE | LAST MONTH | CHANGE |
| Energy | JJE | $23.80 | $22.22 | 7.1% |
| Grains | JJG | $55.92 | $55.87 | 0.1% |
| Industrial Metals | JJM | $48.44 | $48.30 | 0.3% |
| Precious Metals | JJP | $84.69 | $77.16 | 9.8% |
| Softs | JJS | $95.07 | $87.36 | 8.8% |
| Livestock | COW | $31.37 | $31.45 | -0.3% |
| All Commodities | DJP | $51.29 | $49.20 | 4.2% |
ENERGY COMMODITIES
Energy prices are spiking on the unrest in the Middle East. Most everything oil related is soaring right now as crude oil has climbed above $105 per barrel.
Heating oil is seeing the benefit of higher oil prices. Our position in UHN has pulled in gains of 32%. Not bad at all.
The surging price of oil is creating an opportunity in natural gas. As I discussed above, we’re going to buy natural gas at dirt cheap levels.
See above for details…
GRAIN COMMODITIES
Grains continue to be volatile.
Unpredictable weather conditions, unexpected inventory reports, and fears of inflation are sending grains prices all over the map.
Wheat and soybeans have been on a rollercoaster ride. It’s nearly impossible to tell what’s coming next with those two.
Meanwhile, corn has been somewhat more stable. It continues to trend upward and is reaching record high levels.
Grains are a bit too volatile for my tastes right now. But I’ll definitely keep an eye on them in case an opportunity opens up.
INDUSTRIAL METALS
Spiking oil prices are causing industrial metals to pull back.
Copper had been hanging in there despite inflation fears… but the recent surge in oil is putting downward pressure on copper prices. You see, higher oil prices are creating fears of an economic slowdown.
And of course, copper prices tend to perform better in a growing economy.
I’m not worried. I think this is just a short-term move. Oil prices are climbing on fear, not fundamentals. When the price of oil settles down, copper will resume its climb.
Let’s continue holding our shares of JJC.
PRECIOUS METALS
Another beneficiary of the Middle Eastern crisis is precious metals… and they’ve been soaring.
Political unrest, civil war, spiking oil prices, and inflation concerns are sending investors back into the safety trade. And that means gold and silver are back near their record highs.
Our position in IAU has gained 7% in just one month. Meanwhile, platinum is holding steady near its highs.
Hang onto both positions for bigger profits ahead.
SOFTS
Violence is escalating in the Ivory Coast, and the United Nations is warning of a possible civil war.
Cocoa deliveries are still being made to the docks… but they’re not getting exported. Remember, there’s a ban on exports in the region.
Leaders of African nations are attempting to broker a peaceful regime change between the opposing forces. But it’s bound to take time to sort through the details.
All of the uncertainty is causing cocoa prices to surge. Our position in NIB has gained 24% so far. And if civil war breaks out, cocoa could soar even higher.
Let’s hang on to our shares of NIB a little longer and see how this situation plays out. There’s potential for even bigger upside gains.
LIVESTOCK
Both live cattle and lean hogs have steadily trended lower in recent days. Looks like we sold out of our livestock position just in time.
Fears of inflation and skyrocketing grain prices are putting a ceiling on meat prices. There’s a ton of resistance at higher levels in both cattle and hogs.
I think we’ve seen the top in livestock for the time being. I’ll continue to monitor livestock prices, but I don’t see a whole lot of opportunity in these commodities at the moment.
- This month we’re adding Natural Gas (UNL) to the portfolio. See above for all the details.
Category: Commodity Trading
