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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Thursday, July 22, 2010

A different approach - what could earnings season bring us? PART 8

Follow up on United Technologies and Coca Cola which reported yesterday. As suspected only Coca Cola ended the day in green above its channel resistance. UTX ended the day in red. While most of the weakness in stocks yesterday can be attributed to Ben Bernanke's comments, technical picture for UTX calls for further losses under $70...

Today we have many companies that report: Travelers, 3M, Caterpillar, AT&T and Microsoft. Technical picure one by one.

Travelers: rangy market, simialr to IBM, however since about 4 month we have troubles staying above 100d and 200d moving averages. Looks like earnings might disappoint and we might test lower support, but there is no clear sentiment for breaking through range:
3M: 200d and 50d moving averages support, currently in corrective up channel. Bias is to the upside above $80, but momentum has to turn higher for any upside potential:
 Caterpillar looks strong as we remain above all the averages. If we do not fall under support line, further advances are expected:


AT&T is the looser of the pack as market is making lower highs in each move. Expect earnings to disappoint:
Microsoft also remains in the down trend and only close above 26 might open small upside towards $28, but the risk is too big to my mind:
Overall DJIA is lacking direction, however there more components in the index that stand to loose rather then rise. Probably economic data today might help the market either way. Nevertheless the bias for this index remains to the downside. Happy trading!
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