Weekly Update: March 19, 2014

| March 19, 2014

Weekly Update: March 19, 2014

 

Big Picture Outlook:

Janet Yellen is moving the markets today…

In today’s FOMC meeting release, the Federal Reserve Chairwoman announced she’s cutting QE3 by another $10 billion.  That brings monthly Fed stimulus down to $55 billion.  The reduction wasn’t necessarily a surprise as investors have been factoring in this possibility for weeks now.

But she also announced something investors hadn’t planned on…

The Fed changed their language in regards to interest rates.  Instead of waiting for unemployment to reach 6.5%, the US central bank will start increasing rates six-months after QE3 is completely wound down. 

As a result, interest rates will likely start rising sooner than many investors had previously expected.

What does that mean for commodities?

For starters, the interest rate news has the US Dollar soaring.  With the Fed ready to move interest rates higher, global investors will once-again seek the safety of the greenback. 

However, gold and silver are heading steeply lower because of it.  As you may know, precious metals and the US Dollar are negatively correlated.  In other words, when the Dollar rises, gold and silver generally fall.

I’m keeping a close eye on this situation.  When I find another low-risk option opportunity, you’ll be the first to know!

Let’s get to our open positions…

 

Portfolio Recap:

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

Encana bounced back quickly from the selloff last week.  As a matter of fact, the Canadian oil and gas producer hit a new 52-week high in yesterday’s trading session.  The rally sent our July $19 calls back up to $2.25 per contract, which is a 45% gain from our entry.

We’re seeing a bit of selling in today’s session, but it’s likely just a temporary pullback.  We have plenty of time remaining in these calls so let’s keep holding them for higher prices!

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

Oasis managed to put in a respectable bounce over the past few days.  As you know, the Bakken producer hit a multi-week low of $40 a share last Thursday.  But now Oasis is trading at $41.26 and poised for additional gains.

Remember, since the risk control line at $40.90 was hit last week, conservative investors should be out of this trade.

If you’re more aggressive, consider holding Oasis for an additional turnaround rally. 

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

Once again, Barrick is trading like a 3-year old on a sugar high.  The miner bounced to $21 last Friday as Ukrainian political fears sent gold to multi-month highs at $1,380 an ounce.

But with the Federal Reserve releasing their meeting results today, gold and the entire mining complex is back on the downswing.  As I write, Barrick is crossing the tape at $19.50.

Let’s stick to our guns with this trade for a while longer.  With a May expiration, we still have ample time to see it work out in our favor.

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

Copper hit a new yearly low at $2.88 a pound in early morning trading today.  Not surprisingly, Freeport followed suit with an early downdraft of its own. 

However, once hitting those early morning lows, copper ran higher to close just shy of $3.00.  We’ll need to keep a close eye on this commodity over the next weeks.  If it puts together another rally, we could see buyers rush into Freeport near multi-month lows.

For now, keep holding our Freeport McMoran $31 Puts.

. . . . Abraxas Petroleum (AXAS) June 20, 2014 $2.50 Calls

Wow…

That’s precisely the breakout we’re looking for in Abraxas!  As you’re likely aware, shares ran from $3.40 last Friday to today’s mid-day price of $3.96. 

Now, don’t be surprised if weak-handed bulls elect to sell out in this area.  After all, Abraxas has made quite a bullish move over the past few days. But once they’re gone, we’ll likely see Abraxas break to multi-year highs.

Keep holding your Abraxas calls for higher prices in the months to come!

. . . . Conoco Phillips (COP) May 16, 2014 $67.50 Calls

Our most recent trade is just getting out of the gate.  We’re seeing some weakness in Conoco today thanks to Yellen’s testimony.  However, given the amount of bullish call activity in this name recently, odds are high that shares continue higher in coming months.

We have plenty of time here, so keep holding your Conoco calls.

 

Category: Commodity Trading