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�PitNews.com Magazine June �008 ��
Disclaimer: The risk of loss in trading futures, options, stocks, and forex can be substantial. See Page 3 for more information.
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In this issue...
Exclusive Interview: Richard Asplund By: Andrew S. HymanThe solar industry is a big business. Some of the solar manufacturers have bigger market capitalizations than many well-known energy...
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Editor in Chief:Lan H. Turner
Editor: Scott [email protected]
Managing Editor: Kimberly [email protected]
National Sales Manager:Todd [email protected]
Art Director: Matt Langenheim
Production Manager: Keegan Garrity
Controller: Joseph Chambers
Webmaster: Jacob Anawalt
Website:http://www.pitnews.com
Email:[email protected]
Off The WallBy: Lan H. TurnerThis Month’s Off the Wall chart comes from Confident Trader, who has made some predictions concerning the Eurodollar: If bullish, another test of the new resistance zone, which would give bears...
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Good or Bad Timing By: Matthew BradbardLast year’s under-performers may merit your attention. We are not suggesting to fully diversify out of what has been working; we still expect to see appreciation in metals, energies, and grains.
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June �008 Commodity Trader’s Almanac By: Scott BarrieLast month we discussed the Livestock Industry and its seasonality, a demand push sell-off which typically affects prices in a similar way to how the “summer driving season” affects petroleum prices.
�PitNews.com Magazine June �008 ��
Disclaimer: The risk of loss in trading futures, options, stocks, and forex can be substantial. See Page 3 for more information.
GENERAL DISCLAIMER: THE DATA CONTAINED HEREIN IS BELIEVED TO BE RELIABLE BUT CANNOT BE GUARANTEED AS TO RELIABLILITY, ACCURACY, OR COMPLETENESS; AND, AS SUCH IS SUBJECT TO CHANGE WITHOUT NO-TICE. PITNEWS.COM, ITS EMPLOYEES AND CONTRACTORS WILL NOT BE RESPONSIBLE FOR ANY-THING WHICH MAY RESULT FROM RELIANCE ON THIS DATA OR THE OPINIONS EXPRESSED HEREIN. THE OPINIONS EXPRESSED HEREIN ARE NOT NECESARILY THOSE OF PITNEWS.COM, ITS EMPLOYEES OR AFFILIATES.
DISCLOSURE OF RISK: THE RISK OF LOSS IN TRADING CAN BE SUBSTANTIAL; THEREFORE, ONLY GENUINE RISK FUNDS SHOULD BE USED. SPECULATIVE VEHICLES SUCH AS FUTURES, OPTIONS, AND FOREX MAY NOT BE SUITABLE INVESTMENTS FOR ALL INDIVIDUALS, AND INDIVIDUALS SHOULD CAREFULLY CONSIDER THEIR FINANCIAL CONDITION IN DECIDING WHETHER TO TRADE. OPTION TRADERS SHOULD BE AWARE THAT THE EXERCISE OF A LONG OPTION WOULD RESULT IN A FUTURES POSITION.
SEASONAL DISCLAIMER: SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FU-TURES SEASONALS THAT HAVE OCCURRED IN THE PAST 15 YEARS. THERE ARE USUALLY UNDERLY-ING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSAC-TION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS. NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE.
HYPOTHETICAL PERFORMANCE: RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRE-SENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSS-ES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PRO-GRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
�PitNews.com Magazine June �008 ��
Disclaimer: The risk of loss in trading futures, options, stocks, and forex can be substantial. See Page 3 for more information.
This Month’s Off the Wall chart comes from Confident Trader, who has made some predictions concerning the Eurodollar:
If bullish, another test of the new resistance zone, which would give bears incentive. Consolidation before reaching the projection is a possibility.
If bearish, further penetration into the new support zone will take place, where Fridays’ session in the form of a doji was 1st evidence of the initial test of bull stops getting triggered, giving us Fridays’ high, only for bears to take advantage and sell the market lower.
Technically the doji isn’t balanced where the real body is dead center of the session. Instead it’s in fact lower on the session, indicat-ing that bears still have control in ED.
As of Fridays’ close, considering the price action of real bodies and
not extremes, bears have the market right now.We have < 61 trading days left on this option purchases before we
reach the 30-day cut-off. Since markets sell faster than rallies, I’m hoping that bears will continue to the objective with authority and aggression, and immediately do away with bullish intentions that may stand in their way.
COT is saying OI is increasing, large specs are leaving the long side, where number of long positions are at annual lows (6/26/07) and declining. Meanwhile let’s watch, wait & see…
By: Lan H. TurnerEditor in ChiefPitNews.com Magazine
The Wall is PitNews.com’s trading forum, found on the web at http://thewall.pitnews.com or from the tab link on the front page of PitNews.com. Each month, we highlight a chart submitted by one of our users.
Get into the action! Start posting charts on The Wall, and maybe you’ll see your chart highlighted here in our next PitNews.com Magazine issue.
L ast month we discussed the Livestock Industry and its seasonality, a demand push sell-off which typically af-fects prices in a similar way
to how the “summer driving season” affects petroleum prices. As is often the case in demand lead markets, significant “breaks” or “corrections” occur around times of peak consumer demand. For example, both Livestock futures and Petroleum futures have a strong historical tendency to break going into the summer driving and barbequing season, which runs from Memorial Day through Labor Day (the end of May through beginning of September).
Markets are efficient systems; they discount the known very effectively. Luckily for traders, not much is truly known in the markets. But events like summer are know, and both producers and consumers can anticipate the change of seasons very effectively, often causing pricing to move ahead of what common sense and logic would imply. For example, common sense implies that gasoline prices should move up when more people consume gasoline. However, because everyone knows this, smart producers and consumers can act ahead of this, and their own reactions move the market – how else can one explain that September Crude Oil prices have gained in value in only slightly better than half of the years (11 of 20) during the “summer driving season.”
The efficiency of the marketplace can be easily summed up by an old trading adage… “BUY THE RUMOR, SELL THE FACT” as known events (“facts”)
June 2008COMMODITY TRADER’S ALMANAC View and Review
By: Scott Barrie
�PitNews.com Magazine June �008
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on their own are usually priced in well ahead of time, while the unknown begins to be factored into pricing when the events are still whispers (“rumors”). It is the pricing of the current (“known”) and the future (“unknown”) which cause prices to move. This interplay is what tends to drive agricultural commodities during the coming weeks.
Getting a Handle on Supply Before SupplyPrices are determined by the interaction of supply and demand. The only way to tell which factor is taking the forefront is through price. Though most analysts and traders look towards price patterns for the end result, a simple analysis of the trend of prices during certain periods within a commodities natural supply/demand cycle can provide a trader with a unique perspective on the market.
Case in point is the Cotton market (symbol CT). The two largest producers of Cotton are China and the United States. Cotton plantings in both begin in April/May and harvest occurs from mid September through November. Currently, the US
Cotton crop is 92% planted versus an average planting progress over the last 5 years of 91%. Planting is a major hurdle towards future production, and as such, once planting is completed future supply tends to become more “known” and prices are pressured. Adding to this pressure is the fact that the largest consumption period for Cotton is during the late winter/early spring, when summer clothing is produced. Given this “logic” of future supply becoming more known – crossing the MAJOR barrier of planting, coupled with generally lack-luster demand – it is not surprising that October Cotton futures have declined in 12 of the last 15 years from the end of June through to mid-August (06/27 to 08/18).
OCTOBER COTTON FUTURES CHANGES IN CENTS/60 LB BUSHELEnter Approximately June ��th / Exit Roughly August 18th
Entry Entry Exit Exit Closed Closed High LowDate Price Date Price P&L (pts) P&L ($) Price Price
6/28/2007 59.90 8/16/2007 55.23 4.67 $2,335.00 66.70 7/13/2007
6/29/2006 51.80 8/16/2006 53.20 -1.40 ($700.00) 55.90 8/7/2006
6/29/2005 53.40 8/16/2005 46.25 7.15 $3,575.00 55.45 7/5/2005
6/29/2004 52.52 8/17/2004 46.60 5.92 $2,960.00 52.85 7/2/2004
6/27/2003 57.50 8/18/2003 54.90 2.60 $1,300.00 61.30 7/10/2003
6/27/2002 45.32 8/16/2002 44.26 1.06 $530.00 48.20 7/11/2002
6/28/2001 42.36 8/16/2001 38.70 3.66 $1,830.00 43.25 7/27/2001
6/29/2000 56.10 8/16/2000 61.64 -5.54 ($2,770.00) 62.70 8/15/2000
6/29/1999 53.35 8/17/1999 53.66 -0.31 ($155.00) 54.00 8/16/1999
6/29/1998 79.64 8/18/1998 74.18 5.46 $2,730.00 81.20 7/1/1998
6/27/1997 76.56 8/18/1997 73.80 2.76 $1,380.00 76.65 7/1/1997
6/27/1996 73.00 8/16/1996 72.72 0.28 $140.00 75.20 8/13/1996
6/29/1995 87.49 8/16/1995 76.75 10.74 $5,370.00 88.30 8/11/1995
6/29/1994 71.51 8/16/1994 67.99 3.52 $1,760.00 74.70 7/28/1994
6/29/1993 56.77 8/17/1993 54.56 2.21 $1,105.00 62.00 7/21/1993
In points In $’s In points In $’s# Trades 15 Total P&L 42.78 $ 21,390.00 Max Draw -6.80 ($3,400.00)
# Win 12 Avg. P&L 2.85 $ 1,426.00 Avg. Draw -2.75 ($1,372.67)
# Loss 3 Avg. Win 4.17 $ 2,084.58 Min. Draw on Win % Win 80% Avg. Loss -2.42 $ (1,208.33) -6.80 ($3,400.00)
Past performance is not necessarily indicative of future results – see disclaimer. Data compliments of Gecko Software, Inc.
8PitNews.com Magazine June �008
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Currently, Cotton prices are under pressure. Prices have been trending lower, possibly signifying that future supply worries, coupled with demand fears given the state of the US/World economy.
Technically this market is in a down-trend, which supports the historical tendency for lower future prices based on natural supply/demand cycles this time of the year. However, the market appears to be “over sold” and may be ready for a correction in the dominant trend. Traders may wish to wait for a short-covering rally above the 75.00 area basis the October contract to implement short positions to take advantage of the historically significant tendency for prices to break in the coming weeks/months.
Technically this market is in a down-trend, which supports the historical tendency for lower future prices based on natural supply/demand cycles this time of the year.
More conservative traders may wish to play the differential between December and July Cotton futures. In most years,
the December Cotton futures - representing Cotton harvested between the end of September and November – tend to be more volatile as these futures represent the “new crop” which is less certain than the “old crop” July futures, which represent last years harvest. In other words, often the “unknown” or “new crop” gains relative to the “known” or “new crop.” This can readily be seen by the fact that December Cotton futures have gained relative to July Cotton futures in 13 of the last 15 years from
Charts courtesy of Track ‘n Trade �.0 Futures. Visit www.TracknTrade.com for a FREE Trial!
�PitNews.com Magazine June �008
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June 7th through June 20th.Currently, this spread seems to be representing the fact that
demand for Cotton may well be lower in the coming months, as the likelihood of a US/World recession is becoming more probable. However, the difference between “old crop” July supplies and “new crop” December supplies is off the charts at
-6.27 million 480-lb bales, a very tight supply situation coming up, it is no wonder that the spread is priced at 15 year highs.
Given the strong supply/demand situation between the two crop years, traders may wish to look on the current retracement in pricing as a buying opportunity. Prices are approaching the 38.2% retracement level at roughly +6.90 (CT2008Z:CT2008N), a level which offered resistance to this spread in March/April 2008, which may well act as support on this correction. As such, traders should look at weakness in this spread as opportunity, looking to buy as soon as the first sign of strength appears.
LONG DECEMBER / SHORT JULY COTTON FUTURES CHANGES IN CENTS/60 LB BALEEnter Approximately June �th / Exit Roughly June �0th
Entry Entry Exit Exit Closed Closed High LowDate Price Date Price P&L (pts) P&L ($) Price Price
6/7/2007 5.73 6/20/2006 5.67 -0.06 $ (3.00) 5.82 4.43
6/7/2006 5.47 6/20/2006 5.92 0.45 $ 22.50 6.08 5.31
6/7/2005 4.01 6/20/2005 4.33 0.32 $ 16.00 4.42 3.52
6/7/2004 -0.34 6/18/2004 2.45 2.79 $ 139.50 2.60 -0.54
6/9/2003 2.50 6/20/2003 3.09 0.59 $ 29.50 3.99 2.50
6/7/2002 4.09 6/20/2002 4.39 0.30 $ 15.00 4.39 4.09
6/7/2001 4.33 6/20/2001 4.85 0.52 $ 26.00 4.86 4.16
6/7/2000 3.53 6/20/2000 4.06 0.53 $ 26.50 4.94 3.53
6/7/1999 0.13 6/18/1999 1.01 0.88 $ 44.00 1.02 -0.14
6/8/1998 -0.09 6/19/1998 0.92 1.01 $ 50.50 1.74 -0.09
6/9/1997 2.61 6/20/1997 2.98 0.37 $ 18.50 3.00 2.43
6/7/1996 -4.29 6/20/1996 1.62 5.91 $ 295.50 1.62 -4.29
6/7/1995 -28.89 6/20/1995 -31.50 -2.61 $ (130.50) -28.89 -33.50
6/7/1994 -5.09 6/20/1994 -2.53 2.56 $ 128.00 -2.52 -5.09
6/7/1993 -1.46 6/18/1993 -0.99 0.47 $ 23.50 -0.55 -1.60
In points In $’s In points In $’s# Trades 15 Total P&L 14.03 $ 7,015.00 Max Draw -4.61 $ (2,305.00)
# Win 13 Avg. P&L 0.94 $ 467.67 Avg. Draw -0.50 $ (250.67)
# Loss 2 Avg. Win 1.01 $ 506.92 Min. Draw on Win % Win 87% Avg. Loss 0.43 $ 212.50 -4.61 $ (2,305.00)
Past performance is not necessarily indicative of future results – see disclaimer. Data compliments of Gecko Software, Inc.
Charts courtesy of Track ‘n Trade �.0 Futures. Visit www.TracknTrade.com for a FREE Trial!
10PitNews.com Magazine June �008
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ConclusionThe purpose of this month’s article was to show that supply and demand, combined with price can offer valuable clues about the market when taken in conjunction with the current fundamentals and filtered through the natural supply/demand cycle of the market in question. Price is an important indicator in analysis, as price represents the best “guestimates” of the collective marketplace about supply and demand. However, when price is analyzed within the context of the “known” and
“unknown” of supply and demand, perhaps a truer picture about the future can be drawn.
Price is an important indicator in analysis, as price represents the best “guestimates” of the collective marketplace about supply and demand.
My personal opinion about most analysts in the futures markets is that through “common sense” and the “known”, they draw weak conclusion about the future. Our job as traders/analysts is to attempt to ascertain the future. By understanding the basic current fundamental situation, combined with an understanding of how things typically change (“the natural supply/demand cycle”) combined with price, traders can make more informed decisions about how prices may behave in the future.
Scott Barrie is a former Chicago Exchange Member and Private Hedge Fund Operator. He is also a well respected speaker, author as well as the editor of PitNews.com Magazine and a major contributing author. His firm, Commodity Futures and Equity Analytics (CFEA) offers newsletters, as well as consulting services for Individuals, Funds, and Brokerages involved in both Speculation as well as Hedging. For current research and products available from Scott Barrie and CFEA visit www.CommodityAlmanac.com
11PitNews.com Magazine June �008
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Richard AsplundDeveloper of the MAC Global Solar Index
by: Andrew S. Hyman
Exclusive Interview
Richard W. Asplund is a professional investment analyst and advisor with twenty-five years of experience. He received an MBA cum laude from the University of Chicago Graduate School of Business, a Juris Doctor degree from the University of Wisconsin-
Madison, and a Bachelor of Science degree cum laude in Industrial Engineering from the University of Minnesota. Richard is the author of the recently-published book Profiting From Clean Energy: A Complete Guide to Trading Green in the Solar, Wind, Ethanol, Fuel Cell, Carbon Credit Industries, and more.
T he solar industry is a big business. Some of the solar manufacturers have bigger market capitalizations than many well-known energy companies. To gain a better perspective on this sector, PitNews.com Magazine interviewed Richard W. Asplund, the investment ana-
lyst who developed the index underlying the world’s first solar exchange traded fund (ETF), the Claymore/MAC Global Solar Index Exchange Traded Fund (TAN). Mr. Asplund is also an engineer, lawyer, and author of Profiting from Clean Energy: A Complete Guide to Trading Green in the Solar, Wind, Etha-nol, Fuel Cell, Carbon Credit Industries, and More (New York: Wiley, 2008).
Is the U.S. at a disadvantage in terms of long-term competitiveness by its failure to pay attention to climate change? I don’t think it’s a threat to the economy, per se. I think we’re waking up to the investment opportunities. The United States, for example, has started a lot of research in thin-film solar, and a lot of venture capital is flowing into basic level solar research.
It is a technology driven sector. It’s not a straight commodity business, it’s a high technology business.
In this industry, the technology is more important than labor costs. If you are building a solar factory, the most important thing you need for staffing it is skilled labor. Renewable Energy Corp. (Oslo: REC.OL) of Norway just decided to build their big new plant in Singapore where skilled labor is available, but not necessarily the cheapest labor. The company did not say why it
did not choose China, although intellectual property protections, transport, and pollution are likely issues. It is a technology driven sector. It’s not a straight commodity business, it’s a high technology business.
How can people profit from combating climate change? I think there’s a huge opportunity by picking the right sectors in the clean energy space. The ETF structure is a good way to do it because risk is diversified. There are still major differences in technology. Nobody really knows for sure what technologies will win over say a five or 10-year time frame.
The advantage of the ETF structure is the diversification of the portfolio across technology. Essentially, an investor owns
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everything. So whatever works, is going to take off inside the index.
What is interesting about the solar index is that a lot of people have a tendency to think solar is still barely out of the laboratory. Is this really going to work?
As an example, First Solar, Inc. of Tempe, AZ, (FSLR) essentially came out of nowhere about two years ago with thin-film solar panels made of cadmium telluride. The company had been working on their technology for 10 years but nobody paid much attention to them because they hadn’t gotten beyond lab work. About two years ago they figured it out and put up their plant, and now they’re the biggest market cap player out there. The advantage of the ETF structure is that a company like First Solar will come into the index shortly after they do an initial public offering (assuming they meet the other index criteria) and then holders of the ETF will have exposure to them.
It is a dynamic portfolio that keeps up with the industry, because of the additions and deletions of stocks that are in there. There’s no stock picking in the index. If they meet the criteria then they’re in. If they don’t meet the criteria, they’re out. It is a dynamic, diversified portfolio that helps you track the industry.
What is interesting about the solar index is that a lot of people have a tendency to think solar is still barely out of the laboratory. Is this really going to work? Is this just a science experiment? Am I going into tiny little micro cap companies that are losing money? But that’s not definitely not the case. Five years ago, yes. But today, no. In the past two years, solar has really come into its own as investment sector.
The MAC Global Solar Energy Index has a total market capitalization of $100 billion spread across 25 companies. Market caps of the constituent stocks are much larger than a lot of people would think -- they run from very low to $18 billion to $20 billion on the upside for pure-play solar companies. The average market capitalization of the constituents in the index is $3.8 billion and the median market cap is $1.2 billion, so it is a set of pretty good-sized stocks.
What’s the most important thing people need to know about investing in the solar business? One point I like to make about solar, is that some people say it is a bubble – a science experiment bubble. The solar sector has been growing at a 47% annual rate over the last six years. Most industry forecasts say it will grow at least 40% a year for the next five to 10 years. Right now, solar accounts for only 0.06% -- less than one-tenth
of one percent -- of the world’s electricity production. By 2030, the International Energy Agency says that $4
trillion will have to be spent on new electric generation. A lot will be needed in developing countries – but many aging plants in the United States will need to be replaced as well. We have a choice about what kind of facilities to build – coal, natural gas, or nuclear, or do we want to go renewable – geothermal, wind, and solar. Geothermal is a great solution, and we should do as much as we can, but it can only go in certain active areas, so it is not a mass solution. Wind and solar are much more mass solutions, although they are not silver bullets, because they’re intermittent sources of power. However, they can be an important part of meeting our needs for renewable and clean energy.
What do you say to people who claim that the solar industry is a bubble like the “dot com” boom of the late 1��0s? The solar industry has been out of the laboratory for years and is in mass production on a big scale. The United States and other countries have been working on solar for 30 or 40 years. We’re borrowing technologies from the semiconductor industry and the thin film coating industry. There is a lot of mix
SunPower 1.� MW solar electric system at Nellis Air Force Base, Nevada. Photo courtesy of the National Renewable Energy Laboratory.
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and match and manufacturing know-how being brought to bear on the solar sector.
The solar sector in 2007 had $30 billion worth of sales. It is also a profitable industry. Twenty of the 25 stocks in the MAC Solar Index had a profit in 2007. Pretax profits for the entire sector were about $11 billion in 2007, Photon Consulting reported.
This is a bricks-and-mortar sector. During the dot com bubble, no one knew how to really value those stocks, because there were no profits on which to base the valuations.
Is regulatory policy important in solar investing? There is short-term risk from changes in regulatory policy. The solar industry is still being driven in large part by subsidy-supported demand, especially by feed-in tariffs in Europe – Germany, Spain, Italy, and France. In the United States, we have increasing regulatory support. California has a $3 billion dollar solar support program. We have renewable portfolio standards in 21 states that require utilities to start using more renewable energy. So, the solar industry still is government supported and government subsidies help drive demand.
Over the next several years, costs are expected to steadily come down in the solar sector. They’ve come about down 5% per year historically; but they’ve been held up over the last couple of years because there was a polysilicon shortage. Over the next
two to three years, prices should come down fairly sharply, and that will get us closer to grid parity. First Solar, for example, intends to have their pricing down to 10 cents/kWh by 2010, which matches the retail grid with no subsidies. The company then intends to be at 8 cents/kWh by 2012. The other companies are not quite as far along in terms of reducing their pricing, but that gives you an idea how quickly the industry really is moving toward grid parity without subsidies. Short term, there is significant volatility and risk due to the extent of government support.
The German government is talking about increasing the speed at which its feed-in tariff declines. German electricity consumers are spending a lot of money supporting solar, and there is some political backlash, because it is not the German companies that are benefiting as much anymore. Now it’s Chinese solar companies and U.S. solar companies that are benefiting as well. But, what’s been happening is that, even as support dips in one country, then all of a sudden you have another country that comes out of the blue and says, “OK we’re going to bring on a huge solar program,” so the net effect is that government support globally remains strong.
Spain is such a case. The demand for solar is huge in Spain. They have a feed-in tariff and are the fastest growing solar demand sector right now. But everybody watches that market closely. If any change is hinted at in Spain, it can cause solar stocks to move 5% in a day.
But, as I said earlier, if you just take a long-term picture of this sector and focus on the fact that the industry is moving towards grid parity, then you don’t need to worry about short-term fluctuations. Companies that are in the lead in the solar sector are going to make a lot of money.
At the time of writing this article, the author has no financial interest in the Claymore/MAC Global Solar Index Exchange Traded Fund. This article is strictly for educational purposes and makes no recommendations on the merits of purchasing or selling this or any other fund.
Andrew S. Hyman is the co-author of ETF Strategies and Tactics: Hedge Your Portfolio in a Changing Market (New York: McGraw-Hill, 2008). His co-authors include Laurence Rosenberg, former chairman of the Chicago Mercantile Exchange and Neal Weintraub, noted trading author. The authors currently do seminars and training on using ETFs. To learn more, visit http://etftactics.blogspot.com or email [email protected].
ETF Strategies and Tactics is available for purchase on Amazon.com. Click here to order now!
14PitNews.com Magazine June �008
Disclaimer: The risk of loss in trading futures, options, stocks, and forex can be substantial. See Page 3 for more information.
It is not about a good or bad market, but rather
Good or Bad Timingby: Matthew Bradbard
Last year’s under-performers may merit your at-tention. We are not suggesting to fully diversify out of what has been working; we still expect to see appreciation in metals, energies, and grains. However, looking at markets that are down, as
opposed to up, is a strategy we recommend when trying to identify opportunities which are not on all traders’ radar. This is not too different than juggling asset allocation in your stock portfolio – diversifying into stocks that have been beaten down which you believe have potential to fight back. There are three commodities that may offer opportunities in coming weeks to months: Natural Gas, FCOJ, and Sugar.
Natural Gas:For much of 2007, Natural Gas stayed contained between $5 and $9. From January through December prices for the front month moved from $6 to $7 per million British Thermal Units. That in itself is impressive, registering a 16% increase. But when compared to crude oil in 2007, where prices swooned from $50 to $96--a 92% appreciation –16% seems disappointing. Prices recently traded above the 2003 highs and we did not have any
significant resistance until the highs reached above $15 in 2006. Current supplies are 16% below last year’s levels and we have just started what could become an active hurricane season. It is too early to say, but traders will certainly be paying close attention to upcoming weather reports. What is frightening is that with current prices just above $12, the record high that was hit in 2006 during hurricane season, we were trading below $7 in the first of June. If we were to see a similar appreciation in percentage terms, that would put prices closer to $20-25. Although we are not forecasting such a dramatic move, we feel it is worth the risk
Current supplies are 16% below last year’s levels and we have just started what could become an active hurricane season. It is too early to say, but traders will certainly be paying close attention to upcoming weather reports.
1�PitNews.com Magazine June �008
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to position long and look for anywhere from a 10-15% move higher between now and August.
As long as the trend support line in the accompanying chart holds, we will be
FCOJ:If you were long FCOJ last year I am sorry; if short, congratulations. FCOJ started 2007 just above $2/lb, and by the end of the year prices in the front month contract finished near $1.44
– down over 25%. Prices traded as low as $1.18 during last summer. Current prices are at levels not seen since October 2005, and it appears on daily charts that we are forming a base as we have been trading within a 20 cent range YTD. Looking at the daily and weekly charts, if we are able to hold the current lows bargain hunters may look to shift some exposure into FCOJ. Although volumes are thin at times and this market does not a get a lot of respect, FCOJ tends to be a trending market and we are going to gamble that the tide is about to shift. As you can see below on September FCOJ, the
advising long exposure and looking for higher prices in coming weeks to months.
There are various ways to gain exposure to natural gas; when weighing what strategy works best, traders must recognize the amount of capital they can afford to speculate with and how many risks they are willing to take. We will be advising long futures, long mini futures, purchasing bull call spreads, and potentially trading options against futures depending on the client’s beliefs, goals and their risk tolerance. As long as the trend support line in the accompanying chart holds, we will be advising long exposure and looking for higher prices in coming weeks to months.
stochastic show an oversold market. It is not uncommon to see volume spikes near market reversals both for highs and lows.
We are positioning clients long September via futures and options, looking for a potential move to the 100 day moving average in coming months that comes in just above $1.25, where current price is $1.12.
Charts courtesy of Track ‘n Trade �.0 Futures. Visit www.TracknTrade.com for a FREE Trial!
Charts courtesy of Track ‘n Trade �.0 Futures. Visit www.TracknTrade.com for a FREE Trial!
16PitNews.com Magazine June �008
Disclaimer: The risk of loss in trading futures, options, stocks, and forex can be substantial. See Page 3 for more information.
Sugar:For 2007, the front month contract of Sugar #11 was down 7%, starting the year at approximately 11.60 cents/lb and finishing
at 10.80. After a bounce at the beginning of 2008 prices have retreated almost 30% and we feel that we have currently reached a value zone. Although we try to avoid picking bottoms, if you were to look at where sugar prices have been and where they currently sit, a compelling argument can be made for why all commodity traders that can exercise patience should have sugar in their commodity account with a 1 ½ -3 year time frame. Depending on the contract month prices are trading between 10-14.50 cents/lb. To put things into perspective, with many commodities recently hitting record highs, sugar prices have traded in the mid-sixties before. Coincidence or not, that was in the mid 1970’s – the last time we had an energy crisis. Past performance is never indicative of future results, but those who chose to ignore history are destined to repeat it. Furthermore, if a market was to shift from a world surplus to a world deficit, would that be bullish? We think so! Over the last 2 years the sugar market has had a world deficit, but according to recent reports world production is expected to come in 1-2 million tons below world consumption in 2008-2009.
On the accompanying chart you can see that we are currently oversold and we are positioning clients long via futures and options, looking to have exposure for the next few years and take advantage of a major move higher. In the shorter term we expect to break out of the ascending triangle before we reach the apex which should be in the next 1-2 weeks.
MB Wealth Corp. is not responsible and does not endorse anything out side of the content of this article authored by Matthew Bradbard; President of MB Wealth.
For specific strategies in these 3 markets in addition to other plays we are making for our clients contact us via e-mail at [email protected] or telephone at (888) 920-9997. For the most part investors reading this analysis want to be more hands on, however we suggest taking a look at our new managed futures section and consider diversifying further with CTAs with proven track records at www.mbwealth.com
Charts courtesy of Track ‘n Trade �.0 Futures. Visit www.TracknTrade.com for a FREE Trial!
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