I’ve looked at a few trading ideas over the past couple of months.
Short oil, short the pound, long natural gas, long natural resource stocks – and stay out of the stock market until Halloween.
Let’s take a look at how they’ve done – and what might come next.
The pound still looks a good one to sell
Let’s start with the pound. A few weeks ago, I suggested selling it against the dollar at $1.62 with a stop loss somewhere in the $1.63-4 area, as shown below:
The pound is now sitting at around $1.61, having been as low as $1.58. When it moved to $1.58, I decided it would be prudent to move my stop up to $1.60. That was partly to make myself bullet-proof on the trade, but also because a gap had been left higher up, and the pound versus the dollar – AKA ‘cable’ – has a tendency to ‘back and fill’.
I got stopped out, but I’m now short again from $1.62 with my stop in the same place as before. $1.57 is my next target.
The oil price is heading lower – for now
I also looked at another short idea – to sell light crude oil. That is also working out. This was published when West Texas crude oil was $107 a barrel. It’s now $100. The idea was to sell with a stop just above the recent highs of $112 with a target of $98 and then $92.
Light crude is inching its way lower and I’m confident that we’ll make $98, although there is some support at $100. However, it makes sense for traders to protect any profits, perhaps with a stop around $104.
Both the 21- and 55-day simple moving averages for oil have turned down, which indicates a new trend forming – and it’s down. However, the longer-term moving averages are still sloping up. And in the longer-term, I am still bullish on oil – this is a short-term trade as far as I’m concerned, not a long-term call.
It may well be that higher oil prices will be the catalyst to bring higher interest rates. We’ll see about that in due course.
Natural gas – not very exciting
Moving on, we come to natural gas. The idea behind this trade was to play the typical seasonal pattern in natural gas, which, for some reason, often enjoys a spike in September and October. The intention was to be out by the end of October, so – unlike the sterling and oil ideas where there may be more fun to be had – time is running out on this one.
So what’s happened? Natural gas has inched higher – it sits at $3.77 per million British thermal units (Btu), having been as high as $3.87 – above the $3.50-$3.60 suggested entry price. I still think $3.90 is possible – maybe even a tad higher before month end.
However, after all the trading costs, this one is probably going to work out with no great gains and no great losses, somewhere near flat. Again, it would be prudent to move stop losses to above entry prices.
Junior resource stocks have been disappointing
The idea I am most disappointed in is my suggestion to buy junior resources stocks. I got a ‘buy’ signal on the Canadian small cap exchange – the Venture. It’s a simple trend-following signal, based on crossing moving averages.
What was a ‘buy’ signal in early September is on the verge of failing and issuing a sell – unless the Venture can manage not to give back the gains it saw on Friday.
I wrote about this buy signal when the Venture was at 946. It’s now at 950, so it’s just hanging on. I had high hopes for a rally in natural resource stocks.
Here’s the chart. We don’t have a confirmed sell signal yet – the moving averages haven’t crossed – but it’s close.
How my stock views have done
First, I suggested staying out of the stock market during September and October, with a view to re-entering around Halloween. This meant missing a big rally in September, followed by a sizeable fall, followed by a monster rally this week. We’ll see what the rest of October has to offer before passing judgment here. The US debt deal might turn out to be a case of “sell the news”.
Secondly, there was the idea to buy France and sell Germany. This is a long-term trade so it’s too early to pass any real judgment, but for now the two are in step, with neither outperforming, and so the trade is flat.
So those have been my ideas over the last six weeks and that’s how they’ve fared. For now, the trades I’m most excited about are those oil and sterling shorts. We’ll see how they work out.
Category: Market updates