Before I get started I’d like to wish all of you a Happy and Prosperous New Year.
I like to really get away from it all during the holidays and regroup a bit. No place I have found is a better place to do this than Tasmania. The freshest air in the world and long beautiful days are the norm there as it is their beginning of summer. I think having the new year begin at the start of summer is a much better idea than how we do it in the northern hemisphere.
Here’s a picture of a cool little critter from Tasmania called an Echidna
The next few months are my favorite times to be active in the market, especially the Equity and Futures markets. Lot’s of volume, and good but not ridiculous volatility, are typical. Add to this the historical strengths of the equity markets during the third year of a presidency and the outlook for good trading is even better.
So here goes, my outlook for 2011
Continued move to the upside for the indexes, with a target of 12750-13000 in the Dow Jones Industrial Average. While the conditions exist for broad market volatility I do not feel we’ll see the swings we saw in 2010.
The price of Crude entered the year at a relative high compared to it’s 2010 average but well below all time highs and I see it holding to a higher average this year as the economy continues it’s recovery. I will be a buyer of WTI Crude via the CL futures contract below $90/bbl but will keep a manageable position size waiting for prices below $87.50 for larger purchases. On the upside I will reduce above $92.50 in a limited way and more agressively above $100 assuming macro data remains similar to current conditions. My largest equity position remains CVX as it has been for several years and they should benefit from the above assumptions.
Nat Gas remains a difficult play as inventories are still historically very large. I do not hold long term positions in nat gas but do play the NG futures contract as both a straight play and a hedge against CL positions. Current prices seem high for NG and I believe they reflect trader bias and are short term weather related rather than a true reflection of underlying fundamentals. As such I would be short biased in the NG contract but will mitigate this with relatively small position sizes and tight stops.
The USD remains under some pressure from ongoing FOMC activities but with the change in the make up of the congress the Fed will be under much pressure to curtail additional Quantitative Easing. This should be support for the dollar going forward and I remain a buyer of the dollar via the DX futures contract under 80 and my continue to buy up through 82 if conditions merit it.
I do not typically play in the forex market but have positions in CYB (Wisdom Tree’s Chinese Yuan ETF) which we are currently buyers of at $25.35 and sellers of at $25.75. The Chinese government has been recalcitrant in it’s allowing the Yuan to float realistically and this has a negative effect on the CYB but I am confident the position will outperform the 2yr US Treasury and that is my benchmark for the funds I put into CYB.
As always many events can trigger changes in market conditions, as they occur I will re-evaluate my positions and make the changes I feel prudent and let you know here and on the StockTwits and Twitter Streams.
Once again my best to all for 2011
