Commodity ETF Alert March 2011 Portfolio Update

March 22, 2011

What a difference a month makes.

Since our February update, the world has seen some dramatic events unfold.  And, the commodities landscape has been altered significantly.

First, Libya erupted into a full blown revolution, sending oil prices soaring higher.

Anytime oil prices climb as fast they did in early March, there’s bound to be some collateral damage.  Businesses warn of lower earnings.  Car owners start thinking about public transportation.  Habits start to shift.

But just when oil seemed like it was going to the moon, an earthquake hit off the coast of Japan.  Not just any earthquake either… a massive 9.0 magnitude quake.

While this earthquake wasn’t centered on the Japanese mainland, it unfortunately created a massive tsunami.  Huge waves ripped apart towns and farms… and created a nuclear crisis when they damaged a reactor’s cooling system.

As you might expect, the Japanese crisis has had a significant impact on commodity prices.

Most commodities sold off harshly at the height of the crisis.  Fears of a nuclear meltdown prompted widespread, broad market selling.

Keep in mind, Japan is the world’s third largest economy.  A major economic setback could put a serious dent in demand for commodities.

One of the most notable selloffs occurred in crude oil.

After surging higher for days, the Japanese crisis caused oil prices to reverse.  You see, Japan is a huge importer of oil.  A major slowdown of the Japanese economy would mean less demand for oil.

What’s more, uranium prices nosedived on fears of a global moratorium on nuclear reactor construction.  Keep in mind, nuclear energy is supposed to be a big part of our future.  And uranium prices had been steadily climbing in recent months.

However, as the nuclear crisis abates, commodities are once again heading higher.  It may turn out that March of 2011 is nothing more than a blip in commodities’ impressive, long-term bull market.

Now on to the position updates…

Position Updates

. . . . United States 12 Month Natural Gas (UNL) – HOLD

We’re off to a great start in natural gas.  Our position in UNL jumped 9% right off the bat. Not bad for the first couple weeks.

While the Japanese crisis caused a short-term selloff in most commodities, it actually boosted natural gas right from the start.

You see, Japan is a major importer of natural gas.  And they expect to use it to help cover the loss of energy generated from the damaged nuclear plant.

We think natural gas is setting up for a nice run.

Remember, the price of natural gas was sitting near the cost of production.  Between how cheap natural gas is and the new demand coming from Japan, we might be on the verge of a big move higher.

With the recent climb in UNL, we’ve moved above our buy up to price.  So, we’re moving it to a hold.  Hang on for big upside ahead.

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

Like most commodities, gold is feeling the impact from the recent string of global disasters.

The yellow metal reached new highs in early March.  Market volatility and soaring oil prices sent investors back to the safety of gold.  Then, gold sold off sharply following the Japan earthquake/nuclear crisis.  Widespread, fear-based selling took its toll on everything – even gold – for a day or so.

However, with the nuclear crisis abating, gold has resumed its upward climb.  As of this writing, gold’s back above $1,400 an ounce.

With global uncertainty still lingering, we feel gold is a good place to be.  Is $1,500 an ounce next?  Only time will tell… but we wouldn’t be surprised.

Hang on to your shares of IAU for bigger gains ahead.

. . . . iPath Dow Jones-UBS Energy ETN (JJE) – HOLD

Energy prices are moving higher across the board… and JJE continues to climb.

Remember, JJE is primarily made up of crude oil and natural gas.  And the recent global crises have sent both commodities higher.  The Libyan Civil War has oil prices soaring.  And the Japan nuclear crisis has given new life to natural gas.

We don’t see the fundamentals changing anytime soon.  We’re fast approaching the summer driving season.  Energy prices should continue climbing in coming weeks.

The recent climb in energy prices has pushed JJE above our buy up to price.  So, we’re moving it to a hold.

. . . . iPath Dow Jones-UBS Copper ETN (JJC) – HOLD

Copper has taken it on the chin lately.

The industrial metal is getting hit from all sides: inflation in China; higher oil prices; the Japanese crisis.  Each of these has taken their toll on copper after it reached record highs in recent weeks.

But I’m not concerned.  The long-term fundamentals look great.

Despite various crises, the global economy continues growing.  And of course, copper will be needed to fuel that growth.

Let’s continue holding our shares of JJC.  Bigger profits are on the horizon.

. . . . United States Heating Oil Fund (UHN) – SELL

Our position in heating oil continues to reach new highs.  UHN recently hit $37… good for a 36% gain.  That’s a solid return.

As expected, heating oil is rising alongside crude oil.  Remember, heating oil is a byproduct of crude oil.  And it’s a proxy investment for diesel fuel.

The Middle East/North African crisis is a major catalyst for rising heating oil prices. However, as soon as the conflicts in these oil producing nations settle down, crude oil is likely to nosedive.

And it will take heating oil down with it.

It could happen tomorrow, next week, or next month.  With so much uncertainty, we’d rather lock in our gains while we have the chance.

What’s more, winter is over.  Cold weather is no longer a major factor.

We’ve had a good run in heating oil.  Let’s sell our UHN position and pull in some nice profits.

. . . . iPath DJ-UBS Platinum ETN (PGM) – HOLD

Platinum followed a similar pattern to gold in recent weeks.

The precious metal touched new highs.  Then it sold off when the Japan earthquake/nuclear crisis hit.  And recently, it’s moving higher as the crisis abates.

None of platinum’s long-term fundamentals have changed.  So, we see no reason to alter our outlook for higher platinum prices.

Hang on to your PGM shares for bigger upside potential.

. . . . iPath DJ-UBS Cocoa ETN (NIB) – SELL

Recent events in the Ivory Coast have drastically altered the landscape there.  And it’s time to exit our cocoa position.

Just when the country seemed to be on the verge of full blown civil war, the situation took an unexpected turn.  Several of the incumbent president’s generals have defected to the other side.

And now the incumbent is open to negotiations.  (It’s amazing how fast a dictator will become open to negotiations when he loses military control…)

No one saw this coming.

And cocoa prices have pulled back as a result.  While there is still some uncertainty, the Ivory Coast conflict seems to be heading towards resolution.  And that means cocoa’s run higher is likely done for the time being.

Let’s sell our position in NIB while we still have some profits to lock in.

Action To Take

• Sell United States Heating Oil Fund (UHN)
• Sell iPath DJ-UBS Cocoa ETN (NIB)
• Move United States 12 Month Natural Gas (UNL) from Buy to Hold
• Move iPath Dow Jones-UBS Energy ETN (JJE) from Buy to Hold

Category: Commodity Trading