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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Tuesday, July 13, 2010

A different approach - what could earnings season bring us? PART 2

Market reaction to Alcoa earnings today is different to the overnight trading and broader market continues to rally into earnings season. Alcoa gapped as high as 11.34 on the open following yesterdays earnings release. But the market was quick enough to fall towards 11 again and is trading on the lows of the day. on two other occasions this resulted in new low for the year:




Dow is up 1.5% and most of its components are trading higher. Tonight it is Intel's turn. While the market managed to push through downward channel, there is still 50d moving average at 21.05 acting as resistance now. Everyone is fond of tech stocks, but technically this market has little potential to rally under 50d moving average. I will change my view if we break it though. Here is the chart:

Looks like there is lots of uncertainty for the risk assets, but looking at most of the charts, any advances still should be treated as correction rather then the upward trend.
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