Monday, April 24, 2006

Freeport Mcmoran Copper (FCX)



I purchased Freeport Mcmoran Copper (FCX) May 65 calls @ 3.65, when it was trading around 65.7. FCX touched its lower trendline. Since I still like commodities, I don't mind buying it and see what it does.

Crude Oil



Crude oil has been in a solid uptrend for the past few years, and I expect it to make its way to the top trendline in the near future.

As I mentioned in the previous post, I believe commodities are currently in the third wave. According to the "Elliot Wave Principle" written by Robert Prechter, the third wave is characterized as follows:

Third waves - Third waves are wonders to behold. They are strong and broad, and the trend at this point is unmistakable. Increasingly favorable fundamentals enter the picture as confidence returns. Third waves usually generate the greatest volume and price movement and are most often the extended wave in a series. If follows, of course, that the third wave of a third wave, and so on, will be the most volatile point of strength in any wave sequence. Such points invariably produce breakouts, "continuation" gaps, volume expansions, exceptional breadth, major Dow Theory trend confirmations and runaway price movement, creating large hourly, daily, weekly, monthly or yearly gains in the market, depending on the degree of the wave. Virtually all stocks participate in third waves.

I believe this description matches the current state of the commodity cycle. Finally, after rising in obscurity from 2000 to 2004, people are noticing the boom in commodities. This has resulted in almost a non-stop increase in commodity prices, as people are beginning to understand the story behind commodities. Fundamentally, the demand is so much greater than the supply, that commodities CAN NOT go anywhere but up. I believe this third wave will take us into 2008 to 2009, meaning the price movements will be swift to the upside, and dramatic and short to the downside.

The following is a supply-demand graph of crude oil, courtesy of Peak Oil: Life After the Oil Crash



Current demand of crude oil is approximately 30 billion barrels per year AND GROWING, while produciton is only at approx 25 billion barrels per year. To make things bleaker, the discovery of new oil patches is DECREASING, meaning oil supplies will even drop further in the future. In this environment, how can oil go down?

Thursday, April 20, 2006

The Newspaper rule

There's a rule that says you should buy when something is on page 18 of the newspaper, and sell when it makes it to page 1. In Vancouver, gold and oil was the top story of the local newspaper and of CBC 2 days in a row. CBC is the biggest news station in Canada.

Unfortunately, I didn't see this. I guess I know how people felt in 1999. However, today I sold all my positions early in the morning when they started to break down hard.

Gold



Gold has been in a mini mania this last week, and I wouldn't be surprised if it touches the bottom trendline. However, I feel we are in the strongest leg of this gold bull market (which will last 15-20 years), meaning the consolidation may be short and will provide good buying opportunities.

Cameco Corporation (CCJ)



Although Cameco Corporation (CCJ) is my favorite stock, I believe it is trading WAY above its NAV (and that's not discounted NAV....the company is more expensive than all the uranium they have in the ground at today's prices). Therefore, I believe there will be some weakness in this stock in the near future. I considered buying puts today.

Wednesday, April 19, 2006

Update on positions

AAPL: (Refusing to rally) + (up day for markets) + (earnings after bell) = SOLD. I sold it at breakeven.

I added some Canadian Natural Resources (CNQ) May calls today. Energy looks as if its going higher, along with all the other commodities. Many people think that there will be some consolidation first; however, I differ from that viewpoint.

Tuesday, April 18, 2006

Apple Computer Inc (AAPL)

It was nice to see the markets rally today. I don't think anyone expected this, with the "high oil prices" and everything. Of course, "high oil prices" does not mean anything; it's just an excuse created by the media because they want attention.

With the fed hinting that rising rates may be close to an end, I think we may get a good rally. I don't know whether this rally will be sustainable, but I play short term trends. Going into the close, I bought Apple Computer Inc (AAPL) May 65 Calls @ 4.10. I have no idea what AAPL's earnings will be; I might sell before the close tomorrow cause I have a horrible record at guessing earnings.

Commodities continue to party

Have you noticed that copper has gone up 20 days out of the past 27 days? And copper has gone up huge on those 20 days, up an average of 2-3% per day. Does this mean we are in a mania, or in a serious supply-demand deficit? Because the street is incredibly bearish on commodities (see last post), I'm leaning towards the latter.

Nice to see Southern Copper Corporation (PCU) is up 5%+ as of right now. However, I foolishly sold Halliburton (HAL) at around 79.9 and Newmont Mining corp (NEM) at around 56.1 this morning. Looking back, I was a bit nervous because I was overleveraged in commodities and in options. At least I held on to the biggest winner of the day which is PCU.

Meanwhile, gold, oil, base metals, steel, uranium continue to roll and I see no end in sight.

Monday, April 17, 2006

Surprise! Commodities rise

Over the weekend, I was reading an article in the Vancouver Sun titled: "Equity markets defy conventional wisdom". In the article, it said "Nearly three-quarters of Canadian investment managers say the party's over for Canadian equities." Of course, Canadian equities are only composed of 3 things: Gold, Oil and Mining stocks.

Personally, I have no idea whether these "analysts" are right. But as long as commodities go up, and as long as the fundamentals stay strong, I will continue to ride it to the upside. In fact, I like commodities so much that I bought Southern Copper Corporation (PCU) May 95 Calls today. I'm still holding calls on Newmont Mining corp (NEM) and Halliburton (HAL) .

For my parent's portfolio, today I bought Yamana Gold (TSX: YRI) @ 12.00, UTS Energy (TSX: UTS) @ 7.60 and Uranium Participation Corp (TSX: U) I like YRI and UTS because they have tons of growth potential, so in a rising gold/energy environment, they will benefit both from a rising commodity and from a rising production/reserves portfolio. About Uranium Participation Corp, this is an interesting company that holds the actual uranium. Since there is no way to openly buy uranium from the markets (for good reason), the only way to hold uranium is through this company. Although it is trading above its NAV, I have so much confidence uranium will AT LEAST triple over the next five years that I don't mind paying up for it.

Wednesday, April 12, 2006

Newmont Mining corp (NEM)

I just purchased May 52.5 Newmont Mining corp (NEM) Calls @2.90, or when NEM was trading around 53. With the upgrade of NEM today, an analyst estimating that the net asset value of NEM is over 100/share, and the fact that gold is holding up extremely well at 600 and seems poised to break anytime, I think NEM might regain its leadership status in gold and rise.

Tuesday, April 11, 2006

Today's thoughts

The markets have been free falling for the past few days. Is it the start of an overdue bear market? I have a tough time going short, because everytime you think the markets will fall, it pops back up into new highs.

It's interesting to note that both oil and gold were up for the day, but the oil and gold stocks fell. That tells you that the oil and gold stocks are correlated both with the markets and the commodity. But regardless of what the general stock markets do, if gold breaks up above 600 and oil breaks above 70, I think the oil stocks will rise like crazy, while gold stocks may still stay flat (because they are pretty expensive based on their valuation).

I (luckily) sold my CELG position in the morning for a small profit after it closed its opening gap. I wish I got out of HAL too, but I wasn't around for most of the day. Seeing what oil does, I might sell tomorrow.

Monday, April 10, 2006

Halliburton (HAL)

I purchased April 75 calls of Halliburton (HAL) when it was trading slightly below 79. I like the strength HAL and oil are displaying, and HAL looks ready to break out above 80. However, because oil is at strong resistance right now, I have tight stops on HAL.

I still have my CELG position. Nice to see that it has reversed its nasty downtrend, and it would be interesting to see how much strength it can get over the next few days.

Friday, April 07, 2006

Market Watch

It's been a month since my last post. I'm glad to see that the general markets have broken out of its trading range and made new highs. I don't know whether these highs are sustainable, but as long as the market continues its uptrend, it is best follow it in that direction.

Here are my thoughts on the different markets:

1. Nasdaq



Despite the huge downday today, I am still bullish on the Nasdaq going forward. It recently broke out of its sideways trading pattern. As long as it stays above that trading range, I think it would be wise to go on the long side.

2. Gold



The move in gold for the past year has been impressive. It just keeps going higher with all the other commodities. Although the trend is clearly up, I have a hard time buying right now as it is incredibly overbought. In fact, I think it will go into some type of correction in the near future, even though it just broke out into a new high.

3. Silver



The only thing hotter than gold is silver. Silver's ascent has been vertical of late. Based on my experience, I noticed that once things go vertical, it usually crashes. But any crash in silver would be an excellent buying opportunity, due to its strong industrial and "precious metal" demand. Longer term, I think silver will outperform gold and go over $50/ounce.

4. Copper



The copper chart looks very similar to the silver chart, since it too has gone parabolic. The copper market is really tight, and I believe that the current demand exceeds supply. Parabolic charts usually imply that there are tons of speculative money built in. If the speculators all pull their money out instantaneously due to "fears of a top", then I think copper will become an excellent buying opportunity.

5. Crude Oil



Crude oil is in a contracting triangle pattern. I really don't see crude oil breaking this pattern in the immediate future. But in the long term, I see crude going over a $100/barrel and staying there longer than anyone would imagine.

Current position: Celgene corp (CELG) call options



I bought Celgene corp (CELG) April 35 call options at the close today (when CELG was at 37.81). It is rather uncharacteristic of me to buy Celgene. But I do know that CELG is a well loved stock and a sector leader; when well loved stocks sell off this fast without any change in their fundamentals, it usually results in a quick snap back. I hope this is the case with CELG, and I have a target of 41-42 over the next few days.