Weekly Update: October 9, 2013

| October 9, 2013

Weekly Update:  October 9, 2013


Commodity Watch:

This morning’s EIA inventory report revealed another big increase in US oil inventories.  In fact, crude in storage shot up 6.8 million barrels for the week of October 4th.  What’s more, gasoline and distillate inventories increased even though refinery utilization slowed to 86%.

What’s all that mean in plain English?

This is the bearish fundamental activity I’ve been warning you about for weeks.  If the blowup in Syria hadn’t have happened a few weeks ago, crude would already be priced in the low $90 a barrel range.  Barring another blowup in the Middle East, crude will likely drop below $100 a barrel very soon.

As far as corn goes, the harvest season is going off without a hitch.  As a result, the price of the essential grain is still trading around multi-year lows near $4.40 a bushel. 

But don’t let these low prices fool you.  The slightest bit of bullish information can send short sellers running for cover and bulls rushing in.

Gold is acting very strange in recent trading.  A number of bullish fundamental developments have occurred in recent days, yet the yellow metal is not reacting with higher prices.  I’ll explain more in the position update on silver below.

Let’s get to our open trades in natural gas, silver, and Ags…


Portfolio Recap:

. . . . US Natural Gas Fund (UNG) October 2013 $19 Calls

Natural gas is finally rallying thanks to a bullish turn in the weather.  Not only are temperatures expected to be above seasonal norms in many parts of the country through mid-October, but long-range forecasts call for below normal temperatures by December.  Such a scenario is bullish for natural gas.

Natural gas is currently trading at $3.70 mmBtu as I write.  We need another upturn in the price soon as our $19 calls expire next Friday. 

Remember, since we are so close to expiration, conservative investors should already be out of this trade.  If you’re willing to accept more risk, hold these calls until you hear from me in our update next Wednesday.

. . . . iShares Silver Trust (SLV) October 2013 $22 Calls

Silver is not acting well.  Even though the debt ceiling deadline is approaching, the price of silver is still stuck in a tight trading range around $22 an ounce. 

And that’s not all…

President Obama just announced he’s electing Janet Yellen as the replacement for Federal Reserve Chairman Ben Bernanke.  In case you’re unaware, Yellen is the current vice chairman of the Federal Reserve and has a history of supporting dovish policies.  This should be another bullish development for both silver and gold.

But they’re not moving higher…

In fact, both metals are weakening in the face of these two fundamentally bullish catalysts.  And that tells me our silver call trade is in trouble. 

Now remember, our original purchase price for these SLV $22 calls was $0.50.  In other words, your total risk per contract for this trade is $50.00.  That’s a very inexpensive trade.

However, since silver is not rallying in the face of these bullish developments, conservative investors should close this trade while they have the chance.

As of this writing, you can sell-to-close the October $22 SLV calls for $20.00.  That represents a loss of $30 per contract, or 60% of our original purchase price of $50.

If you’re willing to take on a bit more risk, keep holding the SLV calls to our update next Wednesday.

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

Ag commodities are mixed today as the gridlock in Washington wears on.  But as I said in yesterday’s trade alert, specific soft commodities will likely continue on a bullish run in coming weeks.  What’s more, the end of harvest season usually marks a seasonal low for grains. 

Much like our silver trade above, our DBA calls are very low cost.  With a maximum buy-up-to-price of $0.35 ($35 per contract) we’re not risking much.

However, the percentage gains will be incredible when Ag commodities start cooperating with us over the next month and a half!


Category: Commodity Trading