“The market hurts as many people as it can as often as it can.” -unknown
It’s been a while, hope all is well. Let’s get right to it.
1) DBA (.DBAG) July 24 calls are up 100% since recommended 3/12/09 @ $23.23. Today we closed @ $27.63.
As I’ve mentioned many times, we put on the trade and the fundamentals catch up with us. The breakout point was @ $27 and we ripped right through the resistance. On a small interday pullback on 5/20 I added to the position with the Oct. 28 calls for 1.85. Agricultural commodities are in a long term bull run, when you get an opportunity to extend your maturities on pullbacks don’t hesitate. DBA is going to be a great trade. Every nation on the planet is experiencing drought conditions, financing for equipment and fertilizer and fresh water irrigation (not to mention a population explosion). The collapse of the USD is only adding to the situation as all commodities (except gold) are traded in dollars. We’ll get to the dollar later.
It is your duty as a citizen of the world to profit from adverse situations. The history of the world and the commodity markets specifically were founded on shortages & oversupply. Hold the DBA and look to buy the later expirations on pullbacks (if you can get them).
2) Nothing has changed, The Japanese Yen (FXY) is doomed. I know it had a sharp runup but it has hit the 105 resistance level. It would have to perform a magic act to rise above 105. The Yen has been propped up by the precipitous decline in the USD. They both have trouble falling in tandem although they did today.
3) As you well know, I’ve been working the UUP since Dec. Closed out the 1st position with 120% profit and rolled over the balance on March 19th with June 25 & 26 Puts. Closed today @$23.80. This story will take a lot longer to play out than I’ve got here. In the blink of an eye, the analysts are talking about the US losing it’s AAA credit rating. Any idea what that would do to the dollar or long bonds? Considering rolling it over again. Needless to say they’re both in the money (granted it was quite a wait).
4) Also very little I can say about the TLT puts on the TBT (Ishares ETF). This will turn into a nightmare down the road. Rates will continue to skyrocket and nothing can stop it. The TLT puts need a far out expiration to avoid the normal gyrations and the TBT has no expiration at all.
5) UNG admittedly, had no price pattern to trade when we put the trade on. I said the only reason for the trade was that it was simply priced too low to sustain supply. Nat Gas drillers were shutting down, huge stockpile of inventory. But still no price formation. We saw the rise as was expected.
Here’s The Best Part
The recent pullback the last few days has produced the price confirmation I’ve been looking for. The upward move in the UNG will be much larger than I originally thought. The breakout point has been firmly established at 17.50. If you bought on my call you should have the July 15 calls.
UNG closed today @ 13.70. The 52 week low is 12.69 on April 30th, ‘09. Look for it to test the 12.69 point but not quite get there. That will be the turning point for the UNG.
Keep in mind the historical ratio between Ngas & crude is 7 mcf to 1 bbl crude oil. Today it stands @ 15. I don’t know what (or I should say which) issue will be the trigger for a spike in Nat Gas. But I am certain that it’s coming. Hold UNG, on a pullback to 13, buy more.
6) XOM is setting up for the next big move in crude oil. Being the premier integrated oil company in the world it acts as a proxy for the commodity and the oil servicers. As with the DBA, crude oil will respond to a drop in the USD. Since nothing can prevent the dollars decline, nothing can prevent the rise in crude oil prices… hence (I always wanted to use the word “hence” in a sentence) XOM is in play.
Take a Look at This
CVR Energy, Inc. (NYSE: CVR) is a domestic refiner with operations in Coffeyville, KS, 100 mi. from Cushing. OK, a major crude trading hub. It’s refinery business did $4.8 billion in revenue in ‘08, but that’s not the interesting part. The company also produces nitrogen fertilizer… so what, you say.
There are two ways to make nitrogen fertilizer; using “coke” (not that coke) or natural gas.
CVR produces coke as a byproduct of it’s refinery business and cuts out one of the major cost associated with being a fertilizer producer. Combining the next to no cost of CVR’s fertilizer business with the most efficient refineries, you really can’t ask for a better way to play two early bull markets at the same time (for only $8 per share).
Obvious proxy’s for the agriculture business would be Mozaic & Potash (fertilizer), Monsanto (seed), Caterpillar (farming equipment). With CVR you get two in one for $8 bucks a pop.
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