April is Big Month for Seasonals in These Commodities
Good afternoon. This is James Cordier of OptionSellers.com with a market update for April 14th. Being a trader of different commodities, as we all know, I do like taking a peek at the Wall Street side of the investment world from time to time. I can’t help but wonder what has happened to the Trump rally. Needless to say, all the stock buying hasn’t been happening over the last 90 days because Donald Trump became President, but, to a certain extent, it was. There was a lot of deregulation that sounded very business friendly. Interest rates staying low sounds very business friendly, lowering taxes for certain individuals and incomes certainly sounds very investment friendly.
Right now, the stock market is certainly going both up and down recently. The easy ride to higher prices for the DOW and the S&P seems to have changed tides just recently. So glad that I’m not predicting the direction of the stock market or how high or low it might go. Some of the most respected analysts in the world and some of the heaviest hitters on Wall Street have been talking about, half of them, the market going still higher, and the other half saying look out below.
I’m very happy to watch from the sidelines and not necessarily have to predict what’s going on there. I do enjoy investing in the real world- that is commodities, that’s crude oil, that’s coffee, that’s gold and silver, that’s soybeans, things that are not going to go to zero and will always have a true value. A lot of our listeners and clients have been watching us talk about seasonals recently and I want to talk about that just a little bit. Simply looking at the calendar and pulling out the seasonality for a particular commodity over the last 15 or 30 years, there’s more involved with taking your hard earned dollars and investing in simply what the calendar says.
Recently, we had a typical up-move for cocoa. The cocoa market is supposed to be rallying starting in March and April and going up until July and August. I looked at the fundamentals for cocoa and it simply did not justify going long. The cocoa market, for whatever reason, is not trading seasonally. Supplies looked extremely high and we stayed away from that market. Anyone who has been following along with us, and of course our clients know, one of our favorite seasonal trades is in crude oil.
Generally, crude oil prices are low in December and January, high in June and July, and that is one of our favorite seasonal trades that we do each year. The OPEC production cut agreement that took place a few months ago completely threw the seasonal trade in crude oil out of whack. Crude oil has sharply rallied about $7 or $8, basically to its high of the year in the mid 50’s, kind of where it’s sitting right now. We feel that crude oil is extremely fair priced right now. We think it’s going to be in the middle 50’s for some time to come. We put a very large strangle around the crude oil market. As you know, we’re long from the low 30’s, we are short from the mid to upper-high 70’s, and we think that’s going to be an ideal trade the rest of the year.
One other market that we’re following right now, and seasonally coming up very soon is natural gas. On the other hand of cocoa, the natural gas market usually rallies in the months of March and April and then you sell it. What do the fundamentals look for supply of natural gas? Well, they look very abundant. 80% of production in the United States is at less than $1 per million BTUs. Natural gas is trading around $3-$3.50, certainly a nice profit for natural gas producers; however, $3.50 we see as the fair value for the rest of the year. We’re looking at selling natural gas calls double the price during the seasonal high that normally takes place in April or May. That is one of our very favorite trades for 2017. We think that’s going to work out quite well.
The second trade that we’re looking at right now is coffee. Generally, coffee has a small rally in April and May and then continues to fall, if in fact we have bearish fundamentals throughout the rest of the year. In New York, green coffee stocks are approaching a 14-year high. At the same time, where the largest producer in the world is Brazil, we are expecting to see record production there over the next 2 years. We love the idea of taking this seasonal trade in coffee, as well.
We are shorting it here in the months of April and May for later on in the year at nearly double the price, approximately 80% above where it’s trading right now. These 2 trades, I think, are going to go a long way to help diversify our accounts and add to a nice return at the end of the year. We shall see. These are some of our favorite seasonal trades. Some you stay away from, some you jump on, and these two we like a whole lot.
Anyone wanting more information from OptionSellers.com can visit our website. If you’re not already a client of ours and wish to become one, you can speak to Rosemary at our headquarters and she can help you with that. As always, it’s a pleasure speaking with you and looking forward to doing so again in 2 weeks. Thank you.