Weekly Update: May 20, 2015

| May 20, 2015

Weekly Update: May 20, 2015


Big Picture Outlook:

As I mentioned in my May 6 weekly update, the price of oil is going back on the defensive.  WTI crude is already down 2.75% in the past week as bears regain control of the market.

How low will it go?

I’m seeing a few bearish opinions out there suggesting WTI will collapse all the way back down to the yearly lows at $43 a barrel, and possibly lower.

On the other hand, we have a few bullish analysts suggesting the current pullback will be shallow and short lived.

My opinion lies in the middle.  Given this morning’s EIA inventory report, which showed a 2.7 million barrel weekly draw, WTI may have downside to the $55 area- 7% lower than current prices.

However, there is a wildcard…

Iran and world powers are back at the negotiating table.  They have until their self imposed June 30th deadline to reach an agreement on who, where, and when nuclear inspections will be allowed.

If they get a deal done (which is highly unlikely in my opinion), we may very well see additional downside for oil.

Let’s see what that means for our open positions…


Portfolio Highlights:

Editor’s Note: I won’t update every open position in every update.  I focus on the positions with significant news or price movement.

. . . . US Natural Gas Fund $UNG July 17, 2015 $14 calls 

No doubt about it, natural gas gave us some very nice gains the past few weeks!  The commodity surged as high as $3.10 mmBtu in yesterday’s session before turning lower today.

The best part is, $UNG hit our first profit target at $15 thanks to the natural gas upturn.  Conservative investors should have been able to lock in gains of at least 100% yesterday in our $14 $UNG calls!

Now listen closely…

It looks as though natural gas may take a breather for a few days.  The commodity is trading back down to $2.93 as I write.  But if you’re aggressive, don’t let this pullback sway you from your position.

Consider holding any remaining contracts for higher prices this summer!

. . . . Southwestern Energy $SWN June 19, 2015 $28 calls

$SWN jumped to within $0.40 of our first profit target on May 12th.  The rally sent our $28 calls back up to a $2.25 bid, which was an 86% gain from our $1.21 entry.

But then the bottom fell out…

The natural gas producer sank to the $27 area in recent trading as investors factored in weakness for oil and natural gas prices.

What do we do now?

Going forward, if $SWN trades below today’s low of $26.24, I suggest you close this trade.

I hate the idea of letting this nice winner turn into a big fat loser just because it didn’t quite hit our first profit target.

. . . . Joy Global $JOY July 17, 2015 $44 calls

Unfortunately, $JOY tumbled to $41 a share yesterday as a surging US Dollar sent the industrial metals space sharply lower.  Since our risk control line was set relatively tight at $42.30, conservative investors should already be out of this trade.

If you’re very aggressive, consider holding this call position for a rebound in coming weeks.


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Category: Commodity Trading