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In this update, we will concentrate on a few longer-term strategies for key markets for the coming year. All of these strategies are designed with limited risk and to the trader stay in the positions for an extended period, to be able to take advantage of longer-term nature of these moves. The presence of widespread global recovery expectations is going to facilitate even more fund interest in commodities into 2010. Periodic attempts to reign in inflation through the use of rising interest rates could cause the equity markets to chop around in 2010, as opposed to the very impressive uptrend pattern they exhibited in 2009. With rising rates also serving to make bonds and fixed income investments less desirable, commodities might become even more attractive in 2010. Therefore, traders should look to historically cheap commodities, to commodities with strong demand, and especially to markets that are small enough to be dramatically impacted by an influx of capital.
In looking forward, we see a major slide beginning in the US Bonds and the Yen, with the prospect of significant gains in orange juice, corn and cattle. We expect some rather significant price swings in these markets over the next 9 to 12 months. In general we are operating under the assumption that the global economy is set to recover, but we also think that US growth could end up being a little stronger than the anemic predictions that were being embraced by many markets as recently as the end of October.
In addition to the prospects of fundamental changes, we also are seeing some classic technical signals calling for big moves in the coming months. We are using strategies designed to
- provide lower, defined costs,
- offer leverage potential and
- present an extended time horizon for the “big picture” developments to unfold.
Furthermore, by utilizing multiple units of the enclosed strategies, we hope to capitalize on partial moves by banking profits on a portion of each trade while holding the balance of the positions for an extended period. The idea here is that it would help us increase our resolve to hold out for an even bigger reward.
We admit that these strategies might have some flaws, the most prevalent being a lack of liquidity that could make them difficult to execute. Given their out-of-the-money nature, it could take significant moves for them to turn profitable, and without a significant move in the right direction it could be difficult to exit the trades. On the plus side, the trades generally have a defined risk, and in the event that our predictions are correct, the out-of-the-money options should become more liquid. Finally, one should not forget the potential benefit of holding a multiple positions in the face of favorable, big-picture market reactions.
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