Weekly Update: August 14, 2013
Weekly Update: August 14, 2013
Commodity Watch:
The USDA’s World Agricultural Supply Demand Estimate (WASDE) report came out Monday. While the overall yield estimate dropped slightly to 154.4 bushels per acre, the government agency is still expecting a bumper corn crop.
In fact, if weather remains cooperative, US farmers are expected to produce 13.7 billion bushels of corn this year. Such a crop would push total US supply up 14.5 billion bushels.
Investors initially reacted bullishly on the news since the yield estimate dropped. But once they realized the data wasn’t all that exciting, they sold the commodity to a new 2013 closing low at $4.54 a bushel yesterday.
Natural gas investors got some surprisingly bearish data last week. The EIA’s weekly inventory report revealed a build of 96 bcf for the week of August 2nd. That’s well above last year’s reading of 24 bcf and the 5-year average build reading of 40 bcf. Even though natural gas is at important technical support, fundamentals do not support getting long this market yet.
It will likely be a few more weeks before we have another high odds trading opportunity in natural gas.
Gold is breaking firmly above $1,300 an ounce thanks to the bullish Chinese economic data from last week. If the yellow metal close above $1,350, the July high, we may see another short covering rally. Such a scenario would likely push gold to $1,400 in coming months.
Let’s get to our open positions in oil and silver…
Portfolio Recap:
. . . . US Oil Fund (USO) September 2013 $36 Puts
Crude is teasing us…
The commodity briefly dropped below $103 a barrel last Thursday before rallying back up to the $106.50 area yesterday. Of course, the only thing supporting this latest crude rally was additional worries out of the Middle East.
This week’s EIA report revealed oil inventories fell by 2.8 million barrels for the week of August 9th, not what we want to see. However, distillate inventories rose by 2 million barrels, which means refineries will likely start slowing production soon. Remember, the summer driving season is coming to an end soon. That means oil demand will weaken, driving inventories higher and prices lower.
But most importantly, the EIA revealed US oil production rose to yet another record at 7.6 million barrels of oil per day. Believe it or not, the US is producing nearly as much oil as we import from other countries. This is extremely bearish for US crude prices in the long run.
I know I’m sounding like a broken record on this, but keep holding the USO puts. One of these days crude is going to break lower with a vengeance.
. . . . iShares Silver Trust (SLV) October 2013 $19.50 Calls
We’re off to a great start in our silver trade!
The precious metal is surging thanks to last week’s surprisingly upbeat Chinese economic data. Now that silver broke above the important technical downtrend I pointed out in the trade alert, we’ll likely see additional buyers step in and short sellers cover more of their position.
As of this morning, our October calls are trading for $1.95, which represents a gain of just over 100%.
But remember, our first profit target is at $22 and our second is at $24. Given the bullish momentum in recent trading, it’s very likely silver achieves our first target of $22 in the not-so-distant-future.
So keep holding these SLV calls for further upside. We could very well be in the initial stages of a hefty year-end rally for silver!
Category: Commodity Trading
