Commodity ETF Alert October 2010 Issue

| October 11, 2010 | 0 Comments


“In the depth of winter I finally learned that there was in me an invincible summer.” ~ Albert Camus

It seems like just yesterday the sun was beating down on me.  The asphalt parking lot was like a brick oven.  You could feel the heat radiating off its surface.

As I wiped the sweat away, I reminded myself the heat wouldn’t last.  Autumn would be here before long.

How time flies… Autumn is upon us.  Cool days and cooler nights.  You know what that means… Winter is fast approaching.


When winter gets close, some people think of the holiday season.  Some think of snow.  But everyone thinks of one thing… cold.

As cold temperatures settle in, furnaces across the country are switched on.  The need for heating a home becomes very important.

Because of the cold, the price of heating oil is starting to climb.

Heating oil is a petroleum product made from crude oil.  It’s classified as a distillate, which just means it’s been condensed from vapors at the oil refinery.  Other distillates include diesel fuel and jet fuel.

In the U.S, about eight million homes use heating oil to warm their homes.  The majority of these homes are older and often located in the Northeast.

Here’s the thing…

When it starts getting cold out, eight million homeowners start thinking about heating oil.  You can bet demand for heating oil will pick up.

And that means prices go up.

Depending on the size of the house, the age of the furnace, and the storage capacity of a heating oil tank, refills can be frequent.  This means many households fill their tanks several times during the winter.  As a result, prices tend to remain high until the warmer weather arrives.

Here’s the best part…

We can make money from this seasonal demand!

But that’s not the only reason to invest in this commodity.

Heating oil is actively traded.  It’s even quoted regularly on CNBC.  Why does it get so much attention?  Because heating oil plays a dual role… not only does it heat homes, it’s also used as a proxy for diesel fuel (and jet fuel to some extent).  In other words, by investing in heating oil, you’re also investing in diesel.

You see, heating oil and diesel are both distillates.  Their chemical makeup is very similar.  The only real difference, diesel is treated to remove most of its sulfur content.  Sulfur is removed to meet vehicle emissions laws.  It results in diesel being more expensive than heating oil.

But heating oil and diesel prices track each other very closely.  So, heating oil is widely used by institutional investors as a proxy investment for diesel.

So what’s that mean to you?

Simple.  Diesel is a widely used transportation fuel.  And it’s the primary fuel used in industrial transportation… In other words, it’s huge in the trucking industry.  Plus, it’s popular in Europe for both cars and trucks.

What’s more, diesel tends to be a leading economic indicator because it’s used so heavily in industry. You see, industrial and commercial spending generally pick up before retail spending. And trucking is a great indicator of industrial activity.

It boils down to this… When the economy starts improving, the price of diesel will start climbing.  And that means heating oil prices should climb too.

Here’s the bottom line…

Investing in heating oil serves two separate purposes.  First off, it’s used to heat homes during the colder periods of the year.  And, it’s a good way to invest in diesel fuel.

Now is the perfect time to invest in heating oil.

Winter is almost here.  Some parts of the U.S. are already seeing colder weather. Demand for heating oil is already climbing as homeowners fill their tanks for the winter months.

And that’s not all…

The economic data being released is encouraging.  Industrial activity is starting to pick up.  Truck engines are roaring to life as companies are ramping up productivity. That means diesel prices are on the rise.

In the futures market, the near-term price of heating is more expensive than the longer-term prices.  It’s a condition known as backwardation.  And it only occurs when present demand for a commodity is higher than future demand.  It almost always precedes a run up in the price.

It all tells me heating oil prices have the potential to skyrocket.

It’s time to take advantage of these favorable conditions coming together in the heating oil market.  Grab your shares of United States Heating Oil Fund (UHN) to ride prices higher.


We’re perfectly positioned to profit from rising prices in the United States Heating Oil Fund.  UHN is an exchange traded fund (ETF).  The goal of this ETF is to track the movement of heating oil prices using futures and other contracts.


Take a look at the chart…


UHN is currently trading over $27.  But look what it did last time energy prices took off in 2009.  It traded over $65!  That’s a staggering 240% increase from current levels.  With all the positive developments in the heating oil market, we could be poised for that kind of upside.


The iUnited States Heating Oil Fund (UHN) is trading at $27.26.
Buy UHN up to $28.50 per share.
Our profit target is $40.00 or more.
Don’t forget your position sizing.

Commodity Review

Energy JJE $21.38 $21.33   0.2%
Grains JJG $47.00 $43.40    8.3%
Industrial Metals JJM $42.91 $39.40   8.9%
Precious Metals JJP $72.56 $65.42   10.9%
Softs JJS $62.54 $57.80    8.2%
Livestock COW $29.66 $30.20   -1.8%
All Commodities DJP $43.78 $41.30    6.0%


Crude oil finally broke out of its range.  It briefly reached $85 a barrel before pulling back a bit.

The good news… Crude is still over $80 a barrel.

Energy didn’t see quite the same spike as some other commodities have in recent weeks.  But there was still a nice bump in the price of oil.

As I’ve mentioned before, crude oil inventories are still at high levels.  As long as that’s the case, I don’t expect a massive increase in oil price.  But that could change in a hurry… as it stands, oil prices have finally climbed above the psychological $80 barrier.

Don’t forget, there’s very little downside in oil.  The fundamentals look strong so let’s hang on to our OIL shares.


Have you seen the grain markets lately?  Wow.  What a run!

As we expected, the harsh weather hurt this year’s crop across the world.  We’ve talked about wheat in the past… but now it looks like corn is headed for a historically low yield.  The most recent USDA report is showing shockingly lower expectations in the corn crop.

And the grain markets have exploded higher on the news.

Our position in JJG gives us exposure to corn, wheat, and soybeans.  So we’re in great position to profit from rising grain prices.  In fact, in just one month we’ve already made a stellar 12% return.  Not bad at all!

The dwindling grain supply isn’t going to be resolved any time soon.  So keep holding your JJG shares for further gains.


Industrial metals have jumped 9% in the past month, led by copper and platinum. Remember, platinum is both an industrial metal and a precious metal.

Good news for us – our PGM position has taken off.

In the last month, we’ve seen a nice 11% increase in platinum.  Demand is coming from two areas.  Precious metal demand is still on the rise.  And, automobile sales have picked up as well.  Either way, it’s great for our position in PGM.

Keep holding your shares of PGM.

Copper is climbing on improving economic conditions, especially in China.  Real estate construction in China is fueling the demand for all different types of base metals.

Keep an eye on copper… it’s a good leading indicator of economic activity.


Gold and silver are on fire!

What a month for precious metals.  Political uncertainty, a lower dollar, and fears of inflation are driving investors into the safety of precious metals.

Gold is setting all time record highs.  The yellow metal reached over $1,360 an ounce.

Meanwhile, our position in IAU is doing great.  We’ve made a tremendous gain of 42% so far.

And silver has been just as lucrative.

Silver returns have finally caught up to gold.  Our gains in SLV are up to an astonishing 41%.  It was only a matter of time before silver made its move.

Here’s the best part…

I think the upside is even higher.  Continue holding on to your IAU and SLV shares.


Like most commodities, softs have also had a nice run this past month.

Cocoa prices have picked up a bit lately.  We’re approaching our buy price in NIB and it could blow through it soon.

A couple fundamental factors in the cocoa market are helping our cause.  There’s a shortage of cocoa in Asia causing a spike in demand.  And, fears of a crop damaging disease in the Ivory Coast are also supporting higher prices.

And don’t forget…

The holiday season is fast approaching.  Chocolate is going to be in big demand over the next few months.

Buy your shares in NIB below $45.50 if you haven’t yet done so.


Livestock was one of the few commodity groups not having a stellar month.

But that’s ready to change…

The recent USDA report showing a drastically lower corn yield is pushing cattle and hog prices higher.  You see, corn makes up a large portion of feedstock for livestock. And more importantly, it’s a big component of the price of the animals.

Both cattle and hogs have seen a nice run higher in recent days.  The upcoming holiday season could also push prices higher in the coming weeks as demand for meat increases.

Portfolio Changes

  • This month we’re adding Heating Oil (UHN) to the portfolio.  See above for all the details.
  • We recently moved our platinum position (PGM) to a hold.
  • We recently moved our grains position (JJG) to a hold.

Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.