Weekly Update: November 18, 2015
Weekly Update: November 18, 2015
Big Picture Outlook:
Despite being sharply oversold, gold broke to new 5-year lows in yesterday’s trading session.
While I’d be surprised not to see some sort of technical bounce in the yellow metal, there’s a growing possibility of a huge downdraft reminiscent of 2013.
As you may remember, gold sank $200 an ounce in a matter of weeks in April of that year.
Given the current price action and sentiment towards the metal, a drop to $1,000 an ounce now seems unavoidable.
What’s causing this downdraft?
First of all, investors are factoring in a looming interest rate hike from the Fed. Given the strong October jobs report, economists are putting the odds of a December rate hike at 70%.
Not surprisingly, that news is sending the US Dollar index soaring towards yearly highs. The greenback is closing in on the 101.24, which is the high set in March 2015.
Should the currency surpass that level, it will put even more bearish pressure on gold and other commodities.
Let’s check in on a few of 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.
. . . . Market Vectors Gold Miners $GDX December 18, 2015 $16 puts
$GDX sank to within a whisker of our second profit target at $13.00 yesterday. The downturn has our $16 puts trading at a $2.93 bid, which is a 123% gain from our entry.
If $GDX sinks to $13.00, make sure you collect additional profits on this trade!
If you’re aggressive, consider holding a small portion of your put position for further downside in $GDX!
. . . . ConocoPhillips $COP January 15, 2016 $57.50 calls
After hitting our risk control line at $53.90 last week, $COP bulls are finding new life. The oil producer is once again flirting with $54 as the price of WTI closes in on $40 a barrel.
What’s the next move for crude?
I wouldn’t be surprised to see the commodity drop to test the August low at $38.54 a barrel soon.
However, such a situation will bring about a solid trading opportunity on the long side of the market. After all, it’s highly likely we see a big dose of WTI short covering at current prices, or slightly lower.
If you’re aggressive, keep holding these $COP January 2016 calls for a rebound in the price of crude. We have ample time until expiration.
. . . . iShares Silver Trust $SLV December 18, 2015 $18 calls
Despite gold’s break to new yearly lows yesterday, silver managed to hold above its 52-week low at $14 an ounce.
But let’s be clear…
Judging by gold’s performance yesterday, bears still have the upper hand in the precious metals space. However, it’s still not out of the question to see an abrupt short-covering rally in both gold and silver soon.
Remember, this is a very low risk trade. We have inexpensive call options and a relatively tight stop at $13.25 in $SLV. Keep holding your calls for the potential of higher prices.
Until next time,
Justin Bennett
***Editor’s Note*** I just posted a new free report to the member’s only section on the website. Be sure to read it as soon as possible.
The report contains essential information regarding trade management. Using the relatively simple guidelines presented will help you to get more out of your subscription to the Options Profit Pipeline!
Category: Commodity Trading
