Weekly Update: November 5, 2014

| November 5, 2014

Weekly Update: November 5, 2014

 

Big Picture Outlook:

Well folks, it was another wild week in the commodity space. Thanks to the end of quantitative easing (QE), which was made official by the Fed last Wednesday, the US Dollar index is screaming to new yearly highs.

Not surprisingly, gold is sinking to new yearly lows on the Greenback’s strength. In fact, the yellow metal broke through very important technical support at $1,200 an ounce late last week. As I write, gold is trading for $1,145.

Given the surging dollar and poor investor sentiment, I wouldn’t be surprised if the yellow metal traded at the $1,100 area by year-end.

What about crude oil?

West Texas Intermediate (WTI) plunged below $80 a barrel in Monday’s session when investors heard Saudi Arabia lowered their US selling price.

By dumping cheap crude on the US market, Saudi Arabia is attempting to break the back of US shale producers. It’s a risky move, which I’m not sure will work.

However, crude’s weakness didn’t last long as the EIA reported US oil inventories rose by a much smaller amount than expected last week. In addition, gasoline and distillate inventories are running low due to the recent refinery maintenance season.

Add it all up and we’ll likely see growing US crude demand in coming weeks as refiners race to build up inventories into the holiday season.

I’ll cover more on crude’s price action in the position updates…

 

Portfolio Highlights:

Just a quick note: I won’t update every open position every update. I focus on the positions with significant news or price movement.

. . . . US Natural Gas Fund (UNG) January 16, 2015 $21 Calls

Here’s the rally we’re looking for in natural gas! As you’re likely aware, the commodity surged from $3.50 mmBtu to just over $4.20 in the past week.

What’s causing this abrupt upturn?

A sudden burst of cold weather has descended on the Eastern US. Temperatures were well below normal this past weekend. What’s more, the NOAA expects the cold to stick around at least another two weeks.

Folks, this is exactly the news we were looking for! The natural gas rally has pushed our UNG calls up to a bid price of $2.22, which is a 91% gain from our entry.

If you’re aggressive, keep holding your UNG calls for continued upside in natural gas.

The official start of Winter is just around the corner. If we get extended cold in November and early December, it could really light a fire under the natural gas market!

Our profit targets are $23.50 and $25.00 in UNG.

. . . . US Oil Fund (USO) December 19, 2014 $32 Calls

Thanks to Saudi Arabia’s surprise oil price cut, USO hit our $29.75 risk control line on Monday. If you’re conservative, you may have already closed your position in the USO $32 calls.

If you’re aggressive, don’t be afraid to hold onto this trade a bit longer.     The recent drop to $76 a barrel may have been the capitulation point that bulls are looking for.

. . . . Goldcorp (GG) January 16, 2015 $18 Puts

Thanks to their horrible earnings and a precipitous drop in the price of gold, GG plummeted to $17 a share last week. While this trade has yet to hit our first profit target at $15.50, it did jump to a 111% gain in last Friday’s trading session.

Of course, 100% gains are nothing to shake a stick at. If you’re conservative, it’s a good idea to close a portion of your position when you achieve a money-doubling trade.

But keep in mind… There’s likely more downside for gold in coming months. As a result, I expect continued weakness for GG and the rest of the mining industry.

Until next time,

Justin Bennett

***Editor’s Note*** Keep an eye on your email inbox. I have another trade scheduled to go out before the weekend!

Remember, if you’d like to comment on how you’re doing in the service, or if you have any questions or concerns, please feel free to drop me an email at [email protected]. I’d like to know how you’re doing!

 

Category: Commodity Trading