Weekly Update: February 11, 2015

| February 11, 2015

Weekly Update: February 11, 2015

 

Big Picture Outlook:

WTI is back on the defensive thanks to an outrageously bearish report from the International Energy Agency (IEA). The Paris, France based energy think-tank warned abundant supplies will raise global inventories to record levels by mid-2015.

Legitimizing the IEA’s forecast was the fact US oil stockpiles rose by 4.9 million barrels for the week of January 6th. The inventory addition puts US oil stocks at 417.9 million barrels- a fresh 80-year high.

What’s it all mean?

The IEA’s outlook is a stark reminder to anyone thinking the oil market had bottomed over the past two weeks. Given the new information, there’s a growing chance WTI retests the recent multi-year low at $43.50 a barrel.

At this point, the only near-term factor bulls have to look forward to is the summer driving season, which brings stronger oil demand.

But if US stockpiles continue growing at such a rapid pace, it’s not out of the realm of possibility to see WTI dip into the upper $30 range by the time it gets here in late June!

Let’s get to the updates…

 

Portfolio Highlights:

Editor’s Note: I won’t update every open position every update. I focus on the positions with significant news or price movement.

. . . . Market Vectors Gold Miners ETF (GDX) March 20, 2015 $21 calls

Due to an exceptionally strong US jobs report last Friday, GDX failed to break higher out of the trading pattern I highlighted in our last update. Instead, GDX is trading along the bottom trend line near $21.

Take a look at the updated chart…

While the bullish pattern isn’t broken just yet, the odds of it working out in our favor have decreased over the past week.

Now remember, conservative investors should have already collected gains of around 90% on this trade when GDX hit $23.

If you’re still holding a few of these calls, I suggest you keep a close eye on that lower red trend line. If GDX breaks solidly below it, you may want to consider closing out this trade for good. If it doesn’t break lower, keep holding your GDX calls for higher prices.

. . . . iShares Silver Trust (SLV) January 15, 2016 $18 calls
. . . . iShares Gold Trust (IAU) January 15, 2016 $12 calls

Last week’s US jobs report wasn’t exactly what you’d call bullish for gold and silver. The US Bureau of Labor Statistics (BLS) announced nonfarm payrolls grew by a whopping 257,000 in January- far higher than economists’ expectations.

But the real surprise came from upgraded jobs data for November and December of last year. At 423,000, November’s gains were the strongest month of private sector hiring since 1997.

With economic growth fears easing, investors reacted by selling gold and silver.

What do we do with these positions?

Given the fact these calls expire early next year, I’m not too concerned just yet. We have plenty of time for the metals to rebound and take our call values to new highs.

Keep holding both your positions in IAU and SLV for higher prices.

. . . . WPX Energy (WPX) May 15, 2015 $12.50 calls

This week’s oil downturn is taking some of the wind out of WPX’ sails. The oil and gas producer is holding just above $12.40 as I write.

Now, despite the fact WPX is a diversified producer of oil and natural gas, we have to be careful. If oil keeps trading lower due to oversupply issues, bearish investor sentiment towards the entire exploration industry will likely weaken WPX.

That’s why I’m adjusting our risk control line in this trade…

Instead of the $9.90 mentioned in the trade alert, let’s move our risk control line up to $11.20. Going forward, if WPX trades below $11.20, conservative investors should consider closing this trade to conserve capital.

Until next time,

Justin Bennett

If you’d like to comment on how you’re doing in the service, or if you have any questions or concerns, please feel free to drop me an email at CustomerService@CommodityTradingResearch.com. I’d like to know how you’re doing!

Category: Commodity Trading