Grey Gull likes to dabble a bit in the commodities. I use a simple capital management rule that I have followed for many years.
The table below shows a screen grab of the excel blotter I use to manage my trades. I hope you can read it. I’ll try to update it weekly on this site. I will also try to make it more readable.
I find that the blotter allows me to form a strong commodity assessment. I really find it very useful. If you start to follow it, I think you might as well.
Let me quickly explain what is going on in the blotter. Going from top to bottom we have some MSCI global equity indexes at the top — for miners, materials, energy and industrials. I like to look at these relative to the underlying commodities. Sometimes there is an interesting story. Then there are a bunch of energy indexes, followed by the industrial metals, precious metals and finally agriculture. I used to follow agriculture down to the individual commodity level but got too lazy. I might start looking at them again if people want it. All of these commodity indexes at the S&P Goldman Sachs total return indexes, most of which can be traded on ETF or in the futures.
Moving from left to right, the blotter shows the commodity or index, the trade signal, the date the signal (buy or sell was issued), the return on the signal and the number of weeks the signal has been running. I only measure the return since the latest signal. If there have been multiple signals in a strong bull or bear move, the return will understate the performance.
Down the bottom of columns 4 and 5 you can see that the average return per signal is 11.3%, while the average trade duration is 69 weeks. We have 18 positions in the money and 4 underwater. Three of the underwater trades are sells, which means we have been in a bit of a commodity bull.
The remaining columns separate out the buy and sell trades so we can monitor the relative performance of the buys versus the sells. The buys are averaging a 14.7% return while the shorts are up 6%.
The main messages from the blotter at this point are that it:
- likes energy with the exception of natural gas;
- quite likes base metals – copper, nickel and zinc;
- dislikes precious metals and agriculture.
Last week there was a bullish breakout in the GSCI Energy Index, confirming the energy view.
You can see that the average holding period is quite long. This is by design, I am not a day trader, I’m an asset allocator and this blotter guides my commodity exposures.