Weat Long (+7.8%)

Thesis: Look for an entry on the long side in wheat futures for a mean reversion toward the 200 day. Commercial hedgers are very long which helps increase the chance of a short squeeze if price gets above a key level. Exit on a test of prior support / the 200 day at ~530.

Vehicle: WEAT

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Short Russia Trade

Thesis: Oil is going lower, bounce in correlated sectors / foreign equity markets / currency markets should be faded as they reach their downward sloping 200 day smas.

Vehicle: RUSS (3x Short Russia)

russOriginial Plan: Own it against the April lows.

Entry 6.7
Stop 6.3
Target 9.2
Shares 1
Profit 2.5
Loss 0.4
Risk/Reward 6.25

Actual Entry:

Entry 6.78
Stop 6.3
Target 9.2
Shares 1
Profit 2.42
Loss 0.48
Risk/Reward 5.04

End Result:

Symbol Date Entered Entry Price Date Exited Exit Price Profit (Loss)
RUSS 5/6/2015 6.78 5/11/2015 6.4 -5.60%

Trade Notes: The entry was fine, though it could’ve been a little lower had I been more patient. I should have cut the position Friday 5/8 when there was a lack of upside follow through.

Lesson: Cut the position if it’s not working, even if it hasn’t reached your initial stop loss.

Natural Gas Long

Thesis: Mean reversion toward the 200 day sma at ~ 3.30.

Vehicle to play the theme: UNG

Original Plan:

Entry 14.05
Stop 13.8
Target 16.5
Shares 1
Profit 2.45
Loss 0.25
Risk/Reward 9.80

Actual Entry:

Entry 14.15
Stop 13.85
Target 16.5
Shares 1
Profit 2.35
Loss 0.3
Risk/Reward 7.83

End Result:

Symbol Date Entered Entry Price Date Exited Exit Price Profit (Loss)
UNG 5/8/2015 14.15 5/10/2015 13.9 -1.77%

Trade Notes:

The thesis was correct, but the trade execution was poor. I chased the entry rather than waiting for a pullback, which caused me to keep my stop too tight in order to keep the risk/reward high enough. Had I bought it closer to support near 13.80-14, I could have put my stop farther below the trendline below where my thesis was no longer valid.

Lesson: I need to be more disciplined about my entries so that the capital at risk meets the threshold outlined in my plan. If it moves without me, no worries. There are plenty of other trading opportunities out there.

Non-Correlated Long Setups In Soybean Oil & Cotton

If you’re getting a bit frustrated with the whipsaw action in the US Averages, don’t sweat it, a lot of market participants are. Fortunately for us, there are a whole world of asset classes out there that don’t give a hoot what the S&P 500 or Dow Jones Industrial Average are doing.

Two of these assets I’m watching over the next few months are Soybean Oil and Cotton. Price action is improving in these markets on a structural and tactical basis, but the sentiment and seasonal backdrops I look for aren’t present just yet. Additionally, as we’ll see on the daily charts, it will take time for the declining / flat 200 day simple moving averages to start rising and provide a tailwind for prices.

Let’s take a look at Soybean Oil.


On the weekly chart, we can see that prices held their multi-year support near 30 and are now breaking out of a bullish falling wedge pattern. Additionally, momentum positively diverged at recent lows and is making new highs with prices. With prices 36% below the 200 week simple moving average, there is certainly a lot of room for mean reversionon a structural basis.

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Is Natural Gas The Next Big Energy Trade?

There’s no doubt that Oil and energy related assets have been a great place to be these past few months, but a lot of the names I follow are hitting my upside price targets left and right. I do believe current price action suggests they may have one leg higher left in them, but I think further upside may be limited as many of these securities approach their downward sloping 200 day moving averages.

I’ll admit, it’s hard to tell if this was the ultimate bottom in energy related assets or if it’s a correction within a structural downtrend, so I may end up looking like a total doofus with this post. That being said, I do tend to lean towards the latter because it will take weeks/months of price consolidation to allow the moving averages on a daily and weekly timeframe to flatten out and begin curling higher. Until we see that happen I think it will be tough to sustain any rallies over the intermediate or long term. Also, despite the recent relative outperformance, I think the weekly charts have a lot of work to do in correcting the structural weakness we’ve seen on an absolute and relative basis for the past few years.

That being said, I think natural gas is setting up nicely on the long side, in similar fashion to what we saw in other parts of the energy market months ago.

First, let’s take a look at the charts Crude and its related markets and outline the what I see as remaining upside targets if prices continue to act constructively.

crude1. Prices flagging above prior resistance at 58.

2. Momentum has yet to hit overbought conditions.

3. Next targets up toward 63, 66, 71 if we continue to stair-step higher.

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