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The Day The Commodity ETFs Died

05 May 2011 at 4:19 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

Holy Macaroni! For those who limited themselves to lamenting the 1% Cinco De Mayo losses on the Dow, they missed a stunning beat-down in the commodities universe.

It’s not that it was entirely unexpected. Some may have¬†read my commentary one week ago to the day when¬†I offered the following:

“That said, traders should begin to consider a near-term possibility of shorting silver via ProShares UltraShort Silver (ZSL). The historical ratio between silver and gold prices has contracted to 33:1 from 90:1 in¬†about 6 months time.

What‚Äôs more,¬†even with the¬†Fed‚Äôs policy, markets tend to anticipate change before it happens;¬†that is, in the very near-term, the dollar will get a bit of a bounce and silver will¬†take a bit of beating.”

Had you bought ZSL at the open on Thursday, April 28, and closed the position out at waning moments of Wednesday, May 5, you’d have achieved 80% in one week. Am I bragging? Maybe a little. Yet the truth is, it was only a quick trade on a quick hunch; I avoid this type of speculative activity in the active management of portfolios.

What I have done and what I will do… I reduce exposure via stop-limit loss orders to areas of the market that fall too far from their highs. In other words, I seek to ensure a large-gain, small gain, or small loss on every portfolio holding. Prior to the commodity killing, I took profits on SPDR Oil Services (XES). And today, in some circumstances, I needed to reduce exposure to iPath DJ Total¬†Commodities (DJP), even at a small gain or small loss.

That does not mean I won’t revisit these very investments in the near future. In fact, the long-term prognosis for total commodity investing is very strong.¬†Yet there’s no telling how long the dollar will strengthen or how long the commodity trade itself will unwind. For that reason,¬†I will¬†continue to evaluate an appropriate¬†entry back into commodities based on price movement as well as supply v. demand.

Here’s the May 5 ugliness in table form:

Commodity ETFs/ETNs Get Cremated On Cinco De Mayo  
            Approx 1 Day %
             
iPath DJ Livestock (COW)       -1.1%
PowerShares Global Agriculture (DBA)     -2.4%
SPDR Gold (GLD)         -2.9%
iPath DJ Grains (JJG)         -3.2%
iPath Copper (JJC)         -3.7%
iPath DB Base Metals (DBB)       -3.7%
PowerShares DP Precious Metals (DBP)     -5.2%
iPath DJ Total Commodity (DJP)       -5.6%
iPath DJ Energy (JJN)         -8.8%
U.S Oil Fund (USO)         -9.1%
iShares Silver (SLV)         -11.9%

 

You can listen to the¬†ETF Expert Radio¬†Show¬†‚ÄúLIVE‚ÄĚ,¬†via podcast or on your iPod.¬†You can review more ETF Expert features here.

Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

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