While my crystal ball is in the shop, and I am unable to tell you exactly what will happen in the co...
Commodity Trades to Take This Season
03/13/2012 4:30 pm EST
Agricultural and energy products are entering a period of seasonal strength, says John Person, discussing how traders and investors can use stocks, ETFs, or futures to capitalize on these opportunities in the months to come.
My guest today is John Person, and we’re talking about a seasonal trade for early-to-mid 2012 that maybe you can take advantage of. John, you’re an expert in seasonal trading, so what are we looking at here for the first half of 2012?
Well part of our work in research in the Commodity Traders’ Almanac suggests that we start to see a seasonal tendency for an increase in not only agricultural products in the beginning or the middle part of the first quarter into the middle of the second quarter, but the energy sector as well; fossil fuels, for example; refineries.
We’ll be very interested in looking at drilling companies and refining companies in the energy sector and also natural gas. Everyone has been looking for natural gas to finally make a bottom, but I think that with storage in the mild winter that we had, we’re expecting not a big move up, but I think stocks like a Chesapeake Energy (CHK) should see a sustained move going into the summer.
It depends on the weather…or expectations of weather. If we see a warmer-than-normal spring, then we’re going to see higher usage of electricity for air-conditioning purposes, for example.
I think there’s still a big demand on the global perspective. We like fossil fuels, refineries, drillers, and we also like an ETF in the agricultural sector. If you can’t participate in particular stocks like Monsanto (MON) or Potash (POT), look at the Market Vectors Agribusiness ETF (MOO), an agricultural ETF.
The most common way people see oil prices increasing maybe is at the gas pumps. In the first part of 2012, we’ve seen gas prices increasing. How well does that correlate to crude oil futures and playing that?
Very nicely. With crude oil, refineries need to buy crude oil so then they refine. We come into a period in late February/early March where refineries will start to break down and clean out their processing facilities, and we switch from a winter blend to the reformulated blend gasolines, the “summer blend,” as we call it.
So at this point, there’s going to be a bigger need for diesel fuel; transportation fuel such as jet fuel, which is a different type of processing. So if refiners do not have crude oil, or if they have enough crude oil, they may not buy crude oil, but then they start to build new storage facilities for the byproducts. That’s why I like the refiners, and that’s why I like the drillers: because they still have to produce it.
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