Weekly Update: January 7, 2015
Weekly Update: January 7, 2015
Big Picture Outlook:
Believe it or not, WTI crude is now below $50 a barrel. Oversupply worries, mixed with questionable global economic growth, have bears in complete control of oil.
Of course, OPEC’s unexpected decision to keep production steady in 2015 is the primary cause of the oil downturn.
But here’s the deal…
Crude has already dropped way beyond what market fundamentals warrant.
While there are worries, the global economy is still expected to grow this year. What’s more, global oil demand is expected to rise as well.
And even with the current oversupply issues, WTI crude should not be trading in the $40 range.
However, it’s a fool’s errand to try and pick a bottom in oil right now. The bearish momentum in this market is so extreme, the commodity could get carried into the $30 range.
But listen closely…
I will go out on a limb and predict the biggest move in crude in 2015 will be higher- not lower. In fact, I’d be surprised if the commodity isn’t back above $70 by year-end.
Let’s get to our open position updates…
Portfolio Highlights:
Just a quick note: I won’t update every open position every update. I focus on the positions with significant news or price movement.
. . . . Cameco (CCJ) March 20, 2015 $20 calls
As you likely remember, our play on rising uranium prices took a sudden turn for the worse in early December. Heavy selling in the crude markets leaked into other commodities, including uranium. Due to the metal’s weakness, CCJ hit our risk control line at $17.49 on December 3rd. Conservative investors should have closed this trade on that date.
While we do have plenty of time for CCJ to rebound, only aggressive investors should be holding these calls into March expiration.
. . . . Chesapeake Energy (CHK) January 16, 2015 $24 calls
Expiration is just around the corner for this trade. And since our calls are well out-of-the-money, there’s little chance we recoup our losses here. Remember, CHK hit our risk control line at $21.80 on November 28th. As a result, conservative investors should have closed this trade at that point.
This trade is officially closed.
. . . . Conoco Phillips (COP) January 16, 2015 $80 calls
We initiated this trade on October 3rd 2014, right before the bottom really fell out of the oil market. Thankfully, our risk control line was very tight at $72.50, which triggered just a few days after the trade alert.
Since there’s essentially no chance of COP rebounding to our break-even point at $81.12 ($80 strike + $1.12 premium paid) by next Friday, this trade is officially closed.
. . . . Occidental Petroleum (OXY) January 16, 2015 $110 calls
Here’s another casualty of the extreme crude market crash. With expiration approaching quickly, and OXY trading nowhere near our $110 strike, this trade is officially closed.
. . . . Exxon Mobil (XOM) February 20, 2015 $92.50 calls
XOM has been all over the map. As you know, we initiated this trade in early December thinking oil may find bottom around the $65 a barrel area. Obviously, that didn’t happen.
However, XOM did manage to rise to our first profit target at $94.50 the day after the buy alert. The rally gave us a solid one-day gain of 23% on our $92.50 calls.
Unfortunately, XOM sank back below our risk control line at $89.80 once investors realized $65 was not the bottom for crude.
If you’re aggressive and still holding these calls, it’s important to realize XOM is holding its ground very well relative to others in the industry. As a result, you may want to consider holding these calls into expiration next month.
Once oil does find a bottom, XOM will be at the top of energy investors’ buy lists!
. . . . Barrick Gold (ABX) February 20, 2015 $10 puts
ABX sank to within 4 cents of our $10 price target on December 24th. While you may not have had the opportunity to take profits on that downturn, our ABX puts did jump to a 122% gain on December 16th.
Remember, you should always take profits off the table once a trade attains a 100% return. You don’t necessarily have to close the entire position, but money-doubling trades should always have at least partial profits booked on them.
If you’re still holding some of these puts, I suggest you be careful with them. Gold stocks are acting well in recent trading. To be safe, let’s move the risk control line down to $11.75 from $12.75.
If ABX rises above $11.75, everyone should close this trade.
. . . . Oasis Petroleum (OAS) January 16, 2015 $13 calls
We nailed this one!
OAS rallied $5 a share from December 12th through the 23rd. The bullish surge sent our OAS $13 calls soaring to a $4.50 bid price on the morning of the 23rd– a 275% gain from our entry at $1.20. What’s more, OAS hit our first profit target at $17 on December 19th. As a result, everyone should have collected some hefty Holiday gains!
If you’re still holding some of these calls, keep in mind that expiration is coming next Friday.
. . . . Agnico Eagle Mines (AEM) February 20, 2015 $22.50 puts
Our trade in AEM started off on the right foot. The miner sank to $23 a share after our buy alert on December 19th. The downturn sent our puts to a $1.75 a contract on the 23rd– a 42% gain.
But then sentiment in gold stocks shifted. AEM rallied above our $26.50 risk control line late last week. As a result, conservative investors should be out of this trade.
While I don’t recommend it, aggressive investors may want to keep holding these puts for another downturn in AEM.
. . . . Market Vectors Gold Miners ETF (GDX) March 20, 2015 $21 calls
As I mentioned in yesterday’s trade alert, gold stocks are acting very well in recent trading. Keep holding your March $21 GDX calls for higher prices. Our risk control line is at $18.20, while our profit targets are at $23 and $26.
Until next time,
Justin Bennett
Remember, 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
