Monday, October 29, 2012

Commodity Trader’s Almanac 2013

Commodities are clearly seasonal. Almost like clockwork there are corn harvests, winter heating demands, and holiday gold buying. Not every year is the same, of course. A drought can ravage the corn crop as it did this year, winters can be unseasonably warm or cold, and the general state of the economy can affect how much gold jewelry ends up under the Christmas tree.

Now in its seventh edition, the Commodity Trader’s Almanac (Wiley, 2012), compiled by Jeffrey A. Hirsch and John L. Person, is designed “for active traders of futures, forex, stocks, options, and ETFs.” It follows the general format of its older sister, the Stock Trader’s Almanac, with the first section devoted to the almanac proper and the second to trade strategies and detailed data on the twenty markets covered. These markets are the S&P 500, 30-year Treasury bonds, crude oil, natural gas, heating oil (a newcomer this year), copper, gold, silver, corn, soybeans, CBOT wheat, cocoa, coffee, sugar, live cattle, lean hogs, British pound, euro, Swiss franc, and Japanese yen.

On a two-page table the authors describe the seasonal trades that are the backbone of the almanac. They are the top percentage plays over the life of the traded commodity. For instance, short heating oil on the second trading day of January and hold for 30 trading days. This trade has a success rate of 69.7%, with 23 gains and 10 losses, and a total gain of $34,184, with a best gain of $17,686 and a worst loss of $11,155.

For traders who don’t have the stomach (or the wallet) for trading commodity futures, either individually or as spreads, the almanac introduces them to weekly and binary options. Another, more familiar alternative is to trade ETFs or ETNs, or even related stocks. The trader who couldn’t absorb a loss of over $11,000 on a heating oil futures contract could opt for RJN, the ELEMENTS Rogers International Commodity Energy ETN. “Despite the fact that RJN is composed of a basket of six different energy futures (47.7% crude oil, 31.8% Brent crude oil, 6.8% natural gas, 6.8% RBOB gasoline, 4.1% heating oil, and 2.7% gas oil), it is extremely closely correlated to the price trend of heating oil.” (p. 92)

If you’re looking for a desk calendar with a lot more meat to it than, say, The New Yorker’s cartoon-laden desk diary, the Commodity Trader’s Almanac would be an ideal choice. It is chock full of data and might even make you some money.

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