Weekly Update: February 26, 2014

| February 26, 2014

Weekly Update:  February 26, 2014

 

Commodity Watch:

This morning’s EIA report revealed oil inventories were essentially unchanged from last week.  For the week of February 21st, inventories rose by 0.1 million barrels to 362.4 million.

However, gasoline inventories fell a steep 2.8 million barrels.  And that means refineries will need to ramp up production soon.

In the meantime, we received two of the Fed manufacturing surveys we talked about in the original trade alert.  The Dallas Fed reported a lackluster number on Monday, while the Richmond Fed reported an exceptionally weak reading on Tuesday. 

Crude reacted with a swift selloff to the Richmond number yesterday morning.  But unfortunately the commodity rebounded going into the close of the trading session.  WTI crude is trading at $102.50 as I write.

Keep holding the US Oil Fund (USO) April 2014 $35.50 Puts for a potential downdraft in crude.

Let’s look at our other open positions…

 

Portfolio Recap:

. . . . US Natural Gas Fund (UNG) April 2014 $21 Puts

Well, there it is folks…

The air is finally coming out of the natural gas bubble.  As you know, this commodity shot to multi-year highs near $6.40 mmBtu late last week.  Extended cold weather had jumpy investors throwing caution to the wind and bidding up natural gas beyond reasonable levels.

But now the grownups are coming back into the room…

As of this writing, natural gas is trading at $4.71… a spectacular drop from Friday’s close at $6.24.  We may see a small rebound for the commodity in coming weeks, but by April I expect gas to be trading well below $4.50.

For now, keep holding the April $21 UNG puts and the April $23 UNG puts for continued weakness in natural gas.  We still have plenty of time until expiration for these calls to play out profitably.

. . . . iShares COMEX Gold Trust (IAU) April 2014 $12 Calls

Gold traded up to $1,340 in yesterday’s trading session- the highest level since late October 2013.  The yellow metal’s rally sent our IAU April $12 calls up to $1.05 a contract… a solid 60% gain. 

What’s more, our first profit target at $1,325 has been reached.  If you’re a conservative investor, feel free to take some money off the table at these levels.

But for official performance tracking purposes, let’s not close this trade just yet…

We may see a small pullback for gold over the next few weeks as traders lock in their gains.  But by April, gold will likely be trading at $1,350 or higher.

 

Category: Commodity Trading