Commodity ETFs may be running out of steam

INTERMEDIATE TERM SIGNALS & MARKET ANALYSIS

iPath DJ-UBS Copper (JJC):
08/31/2012 Closing Price: 43.74
INTERMEDIATE TERM (I.T.) SIGNAL:

Intermediate Term Trend is bearish.
Current Position: LONG @ 43.67 on 08/21/2012; REVERSAL SELL STOP @ 42.59
Upcoming Break-Even Price: 45.05; COVER 20%
Current Upside Target = 47.91
Projected Weekly Range: 1.56
Trading 128,000 Shares

I.T. ANALYSIS:

  • Initial trade risk was $188,160 or .38%. Current trade risk is $138,240 or .28%. Current trade profits are $8,960 or .02%.
  • JJC is an ETN that holds only a single commodity, the Copper High Grade futures contract.
  • Copper’s price action last week was essentially nondirectional, although Friday’s intellectual rally could be an indicator for this week’s trading. JJC formed an inside bar to the previous week’s range and closed slightly above the midrange. We still have confidence copper will trade higher and continue this minor rally, but last week’s trading decreases the probability of a wild bullish move. If 45.05 trades this week, look to sell 25,600 shares, pocketing $35,328 in profits. Be mindful that our current position is against the I.T. and major term trends. We therefore believe a Sell Stop and Reversal Short Entry are appropriate at 42.59.

United States Oil (USO):
08/31/2012 Closing Price: 35.89

INTERMEDIATE TERM (I.T.) SIGNAL
:
Intermediate Term Trend is bearish.
Current Position: SHORT @ 35.45; STOP @ 36.46
Upcoming Break-Even Price: 34.44; Cover 20%
Current Upside Target = 35.85 – 37.87*Extended Upside Objective
Projected Weekly Range: 1.21
Trading 159,000 Shares

I.T. ANALYSIS:

  • Initial trade risk was $160,590 or .32%.
  • USO seeks to replicate the spot price of WTI light, sweet crude oil and primarily holds futures contracts.
  • We entered a short position on Monday’s gap lower open at 35.45 trading 159,000 shares. Friday’s gap higher open and strong close leaves us believing our current position could be stopped out early this week. Price action was bearish divergent, have a lower weekly range yet closing above the midrange and previous week’s close. Excluding Friday’s abnormal volatility, the first four trading days last week followed through as planned. If 34.96 trades this week a new I.T. top will form, indicating a correction has begun. Look for trading to be essentially nondirectional this week with the moderate possibility of trading slightly higher.

United States Natural Gas (UNG):
08/31/2012 Closing Price: 18.82
INTERMEDIATE TERM (I.T.) SIGNAL
:
Intermediate Term Trend is bullish.
Current Position: SHORT @ 20.39 on 08/09/12. STOP @ 19.50
Upcoming Cover Price: 17.27; Cover 40,000
Current Downside Targets = 17.27 – 16.36
Projected Weekly Range: 1.15
Trading 100,000 Shares; COVERED 20,000 @ 18.35

I.T. ANALYSIS:

  • Initial trade risk was $204,000 or .41%. Current trade risk is $0. Current trade profits are $166,400 or .33%.
  • UNG seeks to replicate the price movement of NYMEX Natural Gas by holding futures contracts.
  • UNG sold off early last week only to rally back up on Wednesday, Thursday and Friday. If buying continues, look to cover our current position. Our STOP has been moved lower to 19.50, locking in $112,000 or .22%. Price action was bearish divergent with a lower range yet higher close, indicating trading should be lower this week but with fairly high uncertainty. We have issued a large cover of 40,000 shares at 17.27, our downside objective, due to the very low probability of trading below 15.18. We believe the current UNG correction will NOT reverses the bullish trend and are therefore looking to enter a long position.
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