Weekly Update: March 12, 2014

| March 12, 2014

Weekly Update:  March 12, 2014

 

Big Picture Outlook:

For the second week in a row, crude oil is on the downswing.  Building US crude stockpiles, along with a surprise Strategic Petroleum Reserve (SPR) release, has oil trading at $97.78 on the April contract.  That’s down $2.23 on the day and just over a $5 per barrel drop since Monday.

Given this week’s bigger than expected 6.2 million barrel inventory build, crude will likely remain under $100 for the foreseeable future.

On the other hand, gold is shooting to multi-month highs…

The yellow metal is up a hefty $21.40 an ounce on the March contract today to trade at $1,369.  That’s the highest price since September 2013.  Bulls remain in control of gold both from a technical and fundamental perspective.

But the commodity story of the week is copper…

The red metal sank below $3.00 a pound for the first time since 2010 yesterday.  Worrisome corporate debt defaults have investors becoming increasingly concerned about the Chinese economy.  And since China is the world’s largest consumer of copper, we could see additional declines for the metal should upcoming economic data releases confirm a big slowdown.

Let’s take a look at our open positions…

  

Portfolio Recap:

. . . . Encana (ECA) July 18, 2014 $19.00 Calls

Encana is trending up nicely…

The Canadian oil and gas producer hit a mid-day high of $20.51 in yesterday’s trading session.  That sent our ECA $19.00 calls up to $2.25 a contract… a 45% gain from our entry. 

Encana is pulling back a bit in today’s trading session in response to oil’s drop below $100.  However, since these calls expire in July, there’s plenty of time for Encana to regain its composure and move to our profit targets at $21 and $22.

Keep holding these calls for higher prices!

. . . . Oasis Petroleum (OAS) April 17, 2014 $45.00 Calls

Unfortunately, the recent decline in the price of oil has tender-footed Oasis investors running to the sidelines.  Shares of the Bakken producer dropped to our risk control line at $40.90 in this morning’s trading.  As a result, conservative investors may want to close this position to conserve capital.

However, if you’re more aggressive, consider holding Oasis for a turnaround rally.  The quick downturn in crude will likely run its course soon, which should lead to a rebound in Oasis.

. . . . Barrick Gold (ABX) May 16, 2014 $21.00 Calls

Barrick is all over the map.  The miner dropped below $20 a share late last week in response to a short bout of selling in the gold market.  But thanks to the yellow metal’s rally today, Barrick is back above the important $20 level and looking to move higher.

Keep holding our ABX $21 calls for higher prices!

. . . . Freeport McMoran (FCX) May 16, 2014 $31.00 Puts

Freeport is hanging on for dear life right now.  Investors are keeping a very close eye on the corporate default situation in China to see where the price of copper goes next. 

Freeport fell to test the early February lows near $30.50 in yesterday’s trading session.  Should copper stay below $3.00 a pound, or drop further, we’ll likely see Freeport lose the $30 level and move lower.

Keep holding our Freeport $31 Puts for additional gains!

 

Category: Commodity Trading