Weekly Update: November 6, 2013

| November 6, 2013

Weekly Update: November 6, 2013

 

Commodity Watch:

Yet another very important data point is hitting the market later this week.  October’s Nonfarm payrolls number is due out Friday morning.  This is an extremely valuable number for investors because it will give insight into Ben Bernanke’s tapering plans.

If payrolls are strong, we could see the Fed Chairman start tapering operations sooner than many investors realize- possibly as early as December.

In such a scenario, we will likely see a dramatic surge in the US Dollar.  Of course, a strong dollar will create a headwind for commodities.

On the other hand, if employment numbers are weak, it will point to continued stimulus into early 2014. 

Either way, a lot is riding on Friday’s numbers!

Let’s get to our open position updates…

 

Portfolio Recap:

. . . . PowerShares DB Agriculture Fund (DBA) November 2013 $26 Calls

Our DBA calls aren’t looking so hot.  Continued weakness in corn and wheat, along with a lengthy pullback in sugar and coffee, has DBA on the defensive.  Given the current bid/ask for our $26 calls, we have no choice but to hold these to expiration.  Remember, at $25 per contract, this was a very low risk play on rising Ag prices. 

. . . . iShares Comex Gold Trust (IAU) November $12 Puts

Good news and bad news for gold…

The good news is the commodity has dropped since we last spoke.  Recent upbeat US economic reports increase the odds of Ben Bernanke starting his tapering program in late 2013.

And now for the bad news…

Gold appears stuck in another directionless trend.  As you may remember, the metal spent most of October trading between $1,300 and $1,350. Due to this continuation of range bound trading, we won’t likely see a big price move for gold in the near future.

We’ll have to keep holding our $12 puts until expiration, as the current bid/ask spread doesn’t support exiting this trade.

. . . . US Oil Fund (USO) December $36.50 Puts

Oil hit our first profit target at $95 in recent trading! If you’re a conservative investor you may want to book a profit in our $36.50 puts.

No doubt about it, the big drop in the price of crude is making up for the other shortcomings in our portfolio.  In fact, our $36.50 puts shot to a gain of 120% in Tuesday trading as oil dropped to $93 a barrel.

Oil traded higher in today’s trading session, but I don’t see the rally holding for more than a couple of days.  After that, we should see crude drop to the $90 a barrel mark.

Since we still have plenty of time left with these puts, we’re going to keep holding them in the Commodity Profit Hunter portfolio.

. . . . US Natural Gas Fund (UNG) January 2014 $19 Calls

Believe it or not, a surprisingly warm forecast is knocking the spots out of natural gas. 

The commodity dropped to a recent low of $3.40 mmBtu when investors found major eastern heating regions will be basking in above normal temperatures through mid-November.

But let’s not worry too much about this trade just yet… 

We have a long ways to go until expiration, and the weather can turn on a dime.  However, since natural gas triggered the risk-control line at $3.45, conservative investors may want to consider closing this trade to control downside risk.

But for the official record, we’re going to keep holding the $19.00 UNG calls for a rebound in natural gas…

 

Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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