Disclaimer: John Rodgers owns AZC, NSU, CNX, XOM, ADM, BG, CZZ, MSB, and CNX in his Covestor Resource and Commodity model.
September 10, 2010: As of the date of this report, the S&P500 has managed to rally substantially over the past week and a half. There were some less dire economic reports that came out that pushed the market up. To give some insight to my thinking in August and going forward I am going to spend a little time with some trades I made.
It seemed that the S&P was nearing a short-term top after the first week of August so I sold S&P futures in anticipation of a breakdown. At the same time, I hedged the model portfolio by selling SPY against the long stock holdings. My timing was good and the index broke down throughout the month of August. I also sold Nikkei index futures shortly after I initiated the S&P position and followed those down as well. The Yen continued to make new highs against the dollar. Toward the end of the month, it looked like the sell-off had run its course so I closed the short futures and hedge position; however, the S&P proceeded to go down again breaking 1050 on August 26, 2010 which in my mind was a critical support violation so I reopened the SPY hedge and futures positions to only see the market rally over the past week.
I still remain bearish short-term and plan to play defensively throughout September and October. If the S&P closes above 1136, I will remove the hedge and remain long but not enter any new long positions unless I see positive earnings or special opportunities.
Commodities have been a mixed bag over the past month. The oil complex was down on high supplies and questionable demand while natural gas continues on a two and a half month downtrend with no sign of life. New rigs continue to be added and we are now in the shoulder season between summer and winter so there is not much to push the price up. On the other side of the coin, grains and coffee have been on a tear with wheat making an extended move up in the charts. I get the feeling however that longs in grains will be crying a trail of tears as large crops arrive in the fall. The uptick in grains has helped to support my positions in Bunge (BG) and Archer Daniels Midland (ADM). Base metals have been moving up steadily with copper leading the way.
Highlights for the month were the fact that I was able to maintain a defensive posture and not incur any substantial unrealized losses plus some decent dividends were declared on the following holdings (CNX, XOM, ADM, BG, CZZ, MSB, and CNX) so the model is providing returns albeit capital appreciation is limited as a result of the SPY hedge.
Two new holdings that have already performed well are Augusta Resources Company (AZC) and Nevsun Resources Ltd. (NSU). AZC is an exploration company with property in Arizona that contains Copper, Molybdenum, and Silver. NSU has an asset with gold, copper, and zinc in northeast Africa. Both companies have not produced metal yet so these are speculative holdings of a long-term nature.
