I am a part of the team which is responsible for management and hedging of commodities exposures. Some say corporates are good only in following advice from banks or brokerages. I do agree corporates do not have market insight of a bank. But here is a problem. It is not bank or broker or a hedge fund that has biggest risk that markets will go against them. These guys always have an option to do nothing and wait for a better trading opportunity where as we don't. We have to continue to purchase commodities, spend currencies for daily business. Such company is always exposed to changes to market price even if it decides not to hedge. In fact my company has probably one of the biggest short commodities portfolio in the world. Managing such risk effectively is a challenge. It is like being between a rock and a hard place. You get your behind kicked all the time be senior management, whether it was a missed opportunity to hedge or hedge that turned to be out of the money. Critics will say if you lost money on your hedge then you probably bought it cheaper on physical market. let's face it, nobody wants to loose money, full-stop.

So I do not have an option to do nothing as I am always in the position (short in this case). I think people like me have higher motivation to earn positive return on their portfolio then other players. In fact my intention is to bring hedging to a performance benchmark of proprietary trading.

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Friday, June 4, 2010

Weekly markets summary

Do not fight the trend or it will bite you back. So where do we go from here next?

I focus on monthly Dollar index chart. We're through 100 month moving average and as I said before (see my previous post), if we close above it there is good chance we enter into multi year dollar bull market. Does it look like situation is going to get worse? Well, immediate picture does not look good...

Below is the monthly chart of dollar:




Double top in dollar index has been invalidated, so the upward trend remains intact as Euro makes new lows since quite some time:





As discussed yesterday in yesterday's post commodities had a counter trend rally on oversold momentum and and reversed this week. Copper has made new lows for the year and oil failed to get back into the upside channel that had been in place for over a year.




We have posted a higher low in equities though (see chart below). This also corresponds to "flash crash" low in May. if we break these levels, double bottom (January and May lows) should give up relatively easily.


On the good side, NYMEX gas is through 200 days moving average and continues to shine. However I would be cautious now as further losses in equities and commodities might drag this market down:



Bottom line, go with the trend until it ends. And I don't see the end of it yet...
Have a good weekend everyone!
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