Despite beginning week four up 1.93%, a series of unfortunate events brought me down to -3.50%.
Strategy
With the Republican-Democrat debt ceiling stand-off still unresolved I decided it most responsible to take an overall bearish position in the commodities markets. In the event of an American debt default the effects would be felt across countries, industries and markets. Even though I believe it is unlikely Republicans will continue the fight to the point of a default, I thought even just the possibility of an American default would be reflected in downward trends in the commodity markets. Unfortunately I was not correct.
Corn
I had originally shorted 10 contracts at $4.39 on Monday morning, but a quick rise had me doubt my decision. I shortly thereafter covered my position, at a price of $4.42. I lost $1,375.00 in less than an hour. Not a very impressive statistic. On Tuesday, the price of corn began to decrease again, so I shorted 5 contracts, a position that I am still holding and has resulted in some marginal returns.
Wheat
I did everything wrong with regards to wheat. My bearish sentiment resulted in me selling my long position and shorting a whopping 16 contracts. Although I could of made a good profit if I had covered my position Friday morning, my short position costed me $1400, as the price jumped 6.5 points over the week.
Soybeans
Of course the one commodity that followed the trend I predicted is the one whose short position I decided to scrap. I covered my short position in soybeans at the high on Thursday. Seems I can’t get a break. If I had kept my short position I really would have enjoyed the decreasing prices seen below on all 11 of my soybean contracts.
Conclusions
Just as the past few weeks, I need to be more confident in my decisions. In all of the commodities I too often flip flop on my decisions based on quick jumps without looking at the daily trends. Perhaps I should start using some technical analysis to protect myself from the ups and downs experienced during the day.
I was curious as to why wheat jumped 6.5 points over the week. Some online sources revealed some new demand springing up this week. It would be interesting to know if the increase in demand for American wheat has anything to do with the American dollar being the weakest in 8 months. Even though a depreciating currency is generally viewed as a negative economic indicator, a week currency can encourage exports of commodities. Perhaps the depreciating currency can be credited with the increase in demand for wheat.