We shorted on Thursday morning (January 26) on the NYMEX crude oil futures contracts at 101.27. Stop was at 101.97. The trade was closed on the same day at 100.57. Profit per contract was exactly $700.00. Clients are happy.
Crude oil has been making lower highs since Jan 4 and we believe that unless the 104 level will get penetrated crude oil will most likely go lower. Seasonal trend is also lower. Also, there is already at least a 10 dollar risk premium built into crude oil price so market really needs something extra to break higher. More about the reasoning lower.
During the week we also traded futures and options on: Gold, silver, Yen and US 30-year bonds, orange juice, natural gas, soybeans, wheat.
What to expect from weeks ahead
Oh, well. Where shall we start. So FOMC decided to keep rates low until 2014. FOMC is desperate and it clearly shows.
I think Comstock Partners put it as straight forward as possible:
In our view the Fed’s new policy is an act of desperation rather than something to celebrate. The FOMC has used all of its conventional weapons and a lot of unconventional ones and is essentially out of ammunition. The banking system is swimming in excess reserves that it is not using – adding more won’t make much of a difference. This is a classic liquidity trap where further easing will not be much help. The stock market strength assumes that the economy is getting stronger and that company earnings will remain at elevated levels. We think that this will not be the case, and that the market is subject to substantial downside risk.
In 2008 there were people around who said looking at the debt levels and asset prices that western nations could experience their own lost decade. Majority claimed it would not be the case. Well, Fed started their ZIRP in 2008, now we now that the policy will stay in place at least until 2014. This is already 6 years and counting.
We have been active sellers of crude oil call options recently because the price of oil and also many other commodities should be lower. Much lower. Given the state of global economy and near-term prospect crude should be trading at around 80 and not a cent more. The longer the price remains elevated the uglier the fall will be. And that’s common sense.
Of course, there is the Iran issue. But everybody should understand that even if the price of oil will get some short-term pop then we will still be moving lower.
In terms of crude oil price Europe is an isolated case. And I would not want to imagine what will happen to Europe if the price of Brent moves North and stays there. Because, honestly, Europeans are inviting a monster to their doorstep as Iran’s own decision to block any kind of export to Europe could have extremely severe consequences for Europe. European clearly must understand that they are playing with fire here.
Given the state of European economies EURUSD should be trading at 1.0000. It will get there. It’s just a matter of time. Of course, we could get a spring rally to somewhere near 1.40 but this would be a suckers rally. Nothing more.
This week illustrated that markets are getting nervous about the future health of Japanese economy. The short-term USDJPY rise was weird to say the least. The pair came down at the end of the week but something is really cooking there. I believe that we could get a final round of JPY strength on the back of risk assets sell-off but from that point onwards JPY is a mother of all sells. The moment the bond market draws the line USDJPY could be trading around 100.00 in a few days.
We are expecting sideways to downward moves in February. It’s still a good time to sell call options, gold included. I would skip only soybeans.
Have a great trading week!
Ingmar Mattus
Weekly update is sponsored by Spada Capital.
