2008-10-31

TRADE UPDATE: All that shines is not Gold

My Development as a Commodities Trader: All that shines is not Gold

I am back in this trade now that two uncertainties are out of the way. Fed has cut as expected and BOJ has cut as well. This should help bring some "stability" in the markets and cut those wild swings we have been witnessing lately.

Since long bonds (TBOND) anticipate future interest rate move, it is quite reasonable to expect that chances to interest rates rising in future for US are higher than lower. They anyway do not have a lot to reduce. There is of course talk of US rates going to zero or further down but I feel that would require a real armagadon to surface. As of now I am not hanging my hat on zero rates in US. Therefore I only see downside in long bonds. See Few bubbles left to burst.

With that said, I would expect Dollar to go up, Yen to decline (after an initial bounce up may be until 0.010600 area on IMM futures (JPYUSD) (94.34 in USDJPY term), bonds to fall and stocks to go up (possibly after testing some downside around 900-880 in S&P 500)

All this would leave gold on a precipatious path. The diwali demand from India is over and they did not buy as much jewelary as expected. Rupee decline has made Gold expensive in India even after recent fall in USD terms and the trend is likely to continue. My target for 650/550 remains and some projections are pointing to 450 level as well but that is bit far and I am merely keeping an eye at that level.

I have gone short at 771 level yesterday with stops above 840. At the first instance I am looking for breach of 681 where I will add to shorts and move stops down. I am looking to remain short gold until the inflation starts raising its head up and that would require the economies to improve.

What can de-rail this analysis is if US end up lowering rates further. Or stocks fail to stabilise and make new lows.

2008-10-24

UPDATE: Trade Ideas 22nd September

My Development as a Commodities Trader: Trade Ideas 22nd September

GBPJPY and AUDUSD trades worked liked a charm. Unfortunately for me I came out of them much too early with smallish profit but those who stuck to their guns must have gone walking to bank today.

TRADE UPDATE : TRADE UPDATE: All that shines is not Gold

My Development as a Commodities Trader: TRADE UPDATE: All that shines is not Gold

I am out of this trade today at around 690 region. I have not turned bullish on gold yet but something is in making and I will look at that carefully during weekend.

TRADE UPDATE: COFFEE ROBUSTA 2008-09-23

My Development as a Commodities Trader: COFFEE ROBUSTA 2008-09-23

Trade Update

I am out of this trade today between 1640 - 1585. Entry 2212-2137. About 562 points. Some downside still remains but I am on sideline as of now.

2008-10-16

TRADE UPDATE: Looking for bottom in an abyss

My Development as a Commodities Trader: Looking for bottom in an abyss

With recent price action, I feel we have found a short term bottom in the indices markets and we have reached a turning point. I am taking 865 and 837 as bottom for S&P and trading from the long side. I expect bounce up to 1150 - 1200 region (one of my projection is 1445 but I would not hang my hat on that one so early). Break below 865 will be warning sign and close below 837 will derail this analysis.

To limit risk I have taken certain option positions in line with this analysis. A good combo is to sell 3 x Dec 850 PUT, Buy 3x 800 Put and buy 1x 1050, 1150 and 1250 calls. Once the trade moves in the right direction, one can easily convert the calls into butterfly and close the puts. Futures position can be added on long side with stop below 865/837 area.

Price levels are based upon ESZ8 (December E-Mini S&P 500) future and not cash level.

2008-10-14

Feeling like a monkey .. anyone!

As heard from Diablo - a fellow trader (click for full discussion)

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at $10 and as supply started to diminish, the villagers stopped their efforts. So the man announced that he would now up the price and buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further so the offer increased to $25 each and the supply of monkeys became so scarce that it was an effort to even see a monkey, let alone catch it! The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on his behalf.

In the man's absence, the assistant told the villagers. "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them back to him for $50 each."

So villagers rounded up all their savings, and bought all the monkeys from the assistant. They then sat back and waited for the man to return from the city. However, they never saw the man, nor his assistant, ever again... only monkeys everywhere!

Welcome to the Stock market. Wink

2008-10-12

TRADE UPDATE: All that shines is not Gold

My Development as a Commodities Trader: All that shines is not Gold

My first trade was stopped but I see the same trade valid again and I am going back in. Stops higher than 940 this time. Break below 830 to signal trend confirmation and place to add to shorts.

Few bubbles left to burst

TBOND (30 YR - ZBZ8)

Sell from 119'20 till 121'00 Stop above 123 Target 113'13 - 103'02


Last few days have seen a lot of bubbles burst. Just to recall so far I have seen the deflation of these bubbles:

a) Emerging Markets will drive the world economy on their own (the de-coupling theory) bubble - well in my view emerging markets are nothing but a leveraged play on developed world (read USA) economy. Their economies are still tiny compared to developed world economy and the trade between emerging markets is mainly intended for final consumer in developed world. China would buy steel from India to build factories to produce electronic toys using chips made in Taiwan or South Korea assembling flat screen TVs using Japanese technology and Chinese and Taiwanese parts is all good only when a trader earning millions in bonus is buying a new home to keep that new TV or Santa being exceptionally happy with a child whose Dad brought home a big bacon like every other year. Remove the consumer and the trade between emerging markets falls through. So when the developed world grows 1% you can bet emerging markets will grow 5% 10% even 20% and you can use these leverage to get more bang for your buck. But same applies when developed world does not grow and the leverage works the other way.

b) Stock market bubble which took S&P to its all time high similar time last year. What took 4 years to gain took just a year to lose.

c) Commodities are in "super cycle" and will continue to grow as world is running out of them. No longer true. We are not running out of wheat corn and soya nor are we running out of copper steel and aluminium. Even that illusive last barrel of oil looking to sell for $200 seems an illusion as of now. All we are running out of is speculators and retail investors building large positions in commodities pushing them much above their "marginal cost of production". Remove mania and you have "sensible" prices for commodities.

d) Dollar is going to be replaced as world reserve currency. No in fact this year Dollar is the best performing currency. One by one Dollar has turned corner against all currencies. Even GOLD has failed to make new high against dollar (though it took my stop!). The only currency which has performed well (and likely to continue to do so) against Dollar is JPY. In a troubled world, people still rush to Dollar. For Dollar to go down again we need the economy to start improving again. See earlier post (When going gets tough .... the Dollar gets going)


But there are still some bubbles left to burst. For example people are still buying Damien Hirst's "contemporary" art for millions and Candy and Candy are still banking on "super rich" clients buying their expensive apartments luxuriously designed. I am expecting these bubbles to burst soon as well.

In addition, I do not understand why US Government Bonds still remain in such demand when there is tremendous supply - given all these mega Bailout business going on in the developed world. Treasury is printing bonds for any and every purpose these days. So why should I be satisfied with a return of barely 4% over 30 years. One aspect which is keeping it going is the "security" of US Government. But some time people will either run out of money to keep buying these bonds OR they will start finding better things to do with their money (like keeping it in bank once trust returns OR start buying stocks when bottom is in sight). That would cause the bonds to tumble.

I am therefore looking to go short bonds on next up move which I expect to test 119-121 area. Break below 113 will give me clearer signal to add to these shorts and target new lows on ZB.

I am also looking to buy NASDAQ100 (NQZ8) around 1262 area if that can reach on Monday. This will however be a very small and quick in and out trade.

2008-10-10

TRADE UPDATE: Looking for bottom in an abyss

My Development as a Commodities Trader: Looking for bottom in an abyss

This trade has stopped out and I am on sideline. I am still looking for an upside but need to wait for the selling to stop.

2008-10-08

Looking for bottom in an abyss

S&P500 (ESZ8) and other world equity indices

Buy up to 960 stop below 940 target 1080 - 1180

I might regret writing this blog (and more so taking this trade) but I feel that we are reaching a bottom in S&P. I will analyse other markets for exact entry and exit levels but the analysis is likely to be similar. I am still not falling in love with upside but I do not see harm with a small fling for sometime. My target for this bear market (2007 - 2009) is 800 or lower and I still expect that to reach in 2009. However I feel that we now need a pause in this relentless selling we have witnessed for whole of last week. Can anyone imagine S&P was at 1250 just 2 weeks ago? So what factors ask me to see an upside here:

a) We seem to be in capitulation mode where people lose all sense of "reason" and trade with "just get me out of here mode".
b) VIX is hitting all time high. It cannot last or else option markets will go out of line with reality.
c) October Expiry is next week and I feel environment of fear is created (so that puts can be sold at inflated prices before they are allowed to expire worth less)
d) Central Banks world over have come together and even though I do not agree with lot of things they have resorted to doing, but at least there is no point picking up a head to head fight with fed. Ultimately markets will go where they are supposed to be going (which so far is 800 as my bear market target) but that does not mean they have to go there in a straight line.

I also feel some of recent selling was exagrated by some very powerful "fire sale". It was known that ice landic banks were selling assets to raise cash this week and I am sure there might be some more hidden skeletons somewhere in the world (which should start coming out soon). But I feel it should get over now.

This should give us a powerful relief rally, enough to suck a lots of recent undecided bears who will turn bull or get tagged while markets move up through their stops. Also election month in US should keep regulators on their toes to ensure markets do not become "sense less". However the next set of shoe to drop will be earning disappointments and further credit write downs (auto loans/credit card loans/commercial loans). That should give us the final leg of the bear market some time in Q1/Q2 2009.

So while I remain a bear, I would try to ride this move up. As always I will start by taking smaller positions as "probes" and once the trend is confirmed, I will be more aggressive and start buying on dips as well as moving stops up to limit risk.

The risk to this trade remain that it is quite "possible" that we may not stop at this point and sell all the way to 800 level. Afterall we did drop over 250 points in 2 weeks, so it is not surprising to drop further 200 points in next 2 weeks. So I will have one eye open for that eventuality. One "small risk" way is to buy butterflies for 1080/1160/1240 calls in S&P for December. That way the risk would be limited and rewards would be substantial.

2008-10-06

Commodities Are Tumbling

If you carefully analyse recent market action you can find few subtle but very important themes taking place.

a) Panic - people are throwing towels left right and centre. This forces people to get out of bad investments and usually people first get out of good investments as no one wants to crystallise a loss. Though I never understood how a loss on paper is any better but anyway these situations create opportunities.
b) Dollar is getting stronger against rest of the world (except JPY).
c) Commodities are tumbling along with every thing else (except Bonds).

This is an important shift in the markets. Remember the heady days when the world was running out of rice and wheat and commodities exchange traded funds were talk of every social party. Well now those investments are being dumped by those who got on the train late. I am looking at the following trades in near future.

CORN (ZCZ8) - I am short corn and looking to sell up to 480 with stop above 520 with target 325 - 275.
SOY BEAN (ZSF9) - I am short and looking to sell up to 1020 with stop above 1100 and target 800 - 700
WHEAT (ZWZ8) - I am short and looking to sell up to 660 with stop above 750 and target 450 - 350


2008-10-01

All that shines is not Gold

GOLD (ZGZ8/GCZ8)

Sell up to 900 Stop above 935 Target 650 - 550

This is a risky trade. Gold has recently made bold upward moves nearly $110 in just two days. The world appears to be running out of physical gold. The recent headlines are all bullish for Gold.

Investors start a fresh gold rush

Wealthy investors drain supplies of gold by hoarding bullion bars

It seems that the world is running out of Gold. Most GOLD ETFs have reported huge inflow of funds in recent days. So why do I look for downside in Gold. My reasons are all based on chart. It is quite evident that recent moves in Gold were driven by extreme panic. It is also a fact that extreme panic is usually short lived and it is best to fade (counter trade) the panic moves.

I have also been suggesting strong dollar (When going gets tough .... the Dollar gets going).
A careful analysis of the charts indicate that dollar has turned corner against all major (and minor) currencies and the bear market in dollar appears to be over. If dollar is strong usually that is not good for Gold.

Another source for Gold demand used to be jewellery demand from India. This is significantly low this year for obvious reasons. The price is too high and economy is no longer booming. Apparently India has imported 75% less physical gold this year.

Even in these panic moves, Gold has failed to make new highs or even hold on to current highs convincingly.

Factors which can go against this trade are - another round of panic or relentless hoarding of cash in Gold by rich investors who have lost faith in all world banks. Also LBMA (London Bullian Market Association) is forecasting a price of 980 by this time next year and they are usually quite accurate. But that does not exclude possibility that we can see a sharp move down and then return back to safety of Gold later when it is confirmed that the "bail out plan" does not solve the economic problems.

I have taken a small short in December Futures at 890 level. I am planning to add more after a breakout below 850. That could also be a time to start moving stops lower.

TRADE UPDATE: Trade Ideas 22nd September - II

My Development as a Commodities Trader: TRADE UPDATE: Trade Ideas 22nd September - II

I have closed half my position at 2.3887 (1537 points) and moved stop loss to 2.2950 for the remaining half.

TRADE UPDATE: Trade Ideas 22nd September

My Development as a Commodities Trader: TRADE UPDATE: Trade Ideas 22nd September

I have closed my position at 0.7903 (546 points).