Weekly Update: July 3, 2013

| July 3, 2013

Weekly Update:  July 3, 2013


Commodity Watch:

Crude is making big headlines this week.  Another momentous Egyptian uprising is pushing oil firmly over the $100 a barrel mark.  I can’t cover all the details of the protests here, but there’s no doubt this looming crisis has the oil market on edge.  The last time WTI rallied over $100 was in early 2012 when Middle East uncertainty pushed crude to $110 a barrel.

Obviously, making a bearish trade on oil would not be a wise thing to do at this point.  There’s simply no way to know how this situation in Egypt will play out.  However, if oil rises to the $110 area or higher, you can bet we’ll be looking for an opportunity to make another put trade in USO. 

Silver managed to rally slightly from the $18.50 area in recent trading.  Even though sentiment towards silver and gold are overwhelmingly bearish right now, both metals are drastically oversold.  I wouldn’t be one bit surprised to see a massive bout of short covering in precious metals soon.

There’s a huge disparity in corn prices right now.  The front month July contract is still trading north of $6.70 a bushel while the December contract is trading at $5.00.  This means corn is in heavy backwardation.  This futures market phenomenon happens when near-term supply is tight but more inventory is expected to hit the market in coming months.  Corn is not a commodity to be bullish of right now.

Let’s take a quick look at our open positions in gold and natural gas…


Portfolio Recap

. . . . SPDR Gold Trust (GLD) August 2013 $126 Calls

Gold rose to $1,250 today in a shortened market session.  Remember, tomorrow is a market holiday due to the July 4th holiday.  Trading resumes on Friday but action will likely be subdued as most traders will be away from their desks.

Keep holding the GLD $126 calls for higher prices.  Remember, our profit targets are $1,350 and $1,425 in the gold market.  Our risk control line is at the lows from last week at $1,180.  If gold closes below that point, conservative investors may want to close this trade to keep risk in check.

. . . . US Natural Gas Fund (UNG) August 2013 $21 Calls

Unfortunately, last week’s EIA natural gas inventory report came in slightly above expectations at 95 bcf.  Investors reacted to the report by selling natural gas down to the $3.55 mmBtu area late last week.  Obviously, this is not what we’re looking for out of this trade.

But let’s not give up on it just yet…

This week’s EIA report was released today, (a day early) and inventories additions dropped steeply to 72 bcf.  The market reacted with a quick pop due to the bullish nature of the report.  Now all we need to see is some upside follow through in next week’s trading.

Keep holding the UNG $21 calls for a rebound.  Our profit targets remain at $4.10 and $4.40.  But if natural gas breaks below $3.50, conservative investors should consider closing this trade to keep risk in check.

***Editor’s Note***  I will be away from my desk all next week for important meetings.  Please plan accordingly.  You’ll hear from me again the week of July 15th.  Have a fantastic Fourth of July holiday!


Category: Commodity Trading