Short Commodity ETFs – Part 2: The move has begun

The global commodity price decline has begun and has a long way to go

Monday morning I posted a comprehensive strategy for being short global commodity prices through stock ETFs. The purpose of this post is to update Monday’s communications.

Based on Monday’s post, per each $100,000 unit of trading capital I am now short 400 shares of $DYY, the PowerShares DB Commodity Ultra Long ETF — 200 shares at $11.64 (with a present risk to $12.22) and 200 shares at $11.23 (with a risk to $11.81). I may lower the stop on the entire position to 11.81 depending upon price action in the next few days. I will short another 200 shares at $10.14 stop, and if I am filled on this order I will risk the entire 600 share position to $11.06. The target of this trade is $7.15.

I had also planned to buy $SALL, a U.K. ultra short commodity ETF. I am canceling this plan, and will instead buy $CMD, the ProShares UltraShort DJ-UBS Commodity ETF. This ETF exhibits a 4+ month H&S bottom pattern. I will buy 100 shares at 52.01 stop with a risk to 49.19. If I am filled on this order, I will likely extend my leverage by purchasing another 100 shares on a break to 50.52, using the same 49.19 stop. This is NOT a liquid ETF. The target on the trade would be 68.00.

On a reward to risk relationship basis, the risk of my present position is about 23 basis points, or $230 per $100,000 of capital. If both $CMD and $DYY continue to trend in the direction I expect and all orders are filled, my maximum risk at any given time will be about 45 basis points with a potential reward of 570 basis points. So, this trade has a reward to risk ratio in excess of 12 to 1.

Stay tuned, folks.

$RJI $DJP $RJA $GSC

Disclaimer: I am a pure chartist. I do not follow fundamentals or macro economic factors.

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