Risk aversion

The return of risk aversion in both stock and commodity markets could be upon us soon, T Bonds are ticking up again indicating this once more and commodities look overextended, especiallycrude Oil.

Here is a site with my trades, spreadtraderpro.com

Opportunities shaping up

It is a good time to get in on the commodities at bargain prices, in real terms, not seen since the start of the decade. With governments flooding the financial system with liquidity globally, it is just a matter of time before this flows through into higher raw materials prices – more paper chasing limited natural resources. Most commodities have formed bases, including the grains and Curde oil and interestingly Gold has not fallen along with many other commodities, proving resilient, for now.

Later this year could see some fundamental shifts in the currency markets, with the US Dollar potentially resuming its decline, which will lead to gains in the commodity currencies like the Australian and Canadian Dollar. The Euro and GBP could benefit too, but national debts are sky high in Europe and could lead to some competitive currency devaluations, we’ll see.

The stock markets continue to price in a slightly brighter future – though may have gotten ahead of themselves recently…

Natural Gas is one to watch as it has hit multi year lows, the seeds of the next price spike are being sown in this market.

Altogether it is shaping up to be another very interesting year to be trading the markets with many opportunities shaping up in the weeks ahead.

Odiogo

Here is a neat new facility, on the site, download MP3 of posts:

http://podcasts.odiogo.com/silverstein-on-commodities/podcasts-html.php

“Make me a trader”

There is a new TV, “Make me a trader” which is loosely based on the Turtle traders who were tutored by a successful trend following trader.  It looks entertaining, as the candidates are seen day trading without much of a game plan.  The pressure is piled on, as they are made aware anything they lose will lose them, and the group any potential bonuses. It is especially interesting as it was filmed late last year when the markets were very volatile and oil was near its all time high. Its great telly!

Its an interesting show, as it is very genuine in showing the real emotion these novice traders experience as they risk just a few hundred pounds (or Dollars) on their first trades – some almost quit.  I think it might turn out that none of the trades were with ‘real money’ in week two – but that’s just me speculating!

Worth a watch on the BBCs iPlayer if you are overseas.

Van Dam who funds the project from his own pocket piles on the stress – his only criterion for being part of the project are to be able to handle stress and also, be good at maths.

I found a piece on Van Dam and agreed with the comments – you need to find your own style and way, “there are no rules, you need to develop your own.”  This reminded me of the Douglas book, where he suggests the market offers unlimited possibilities and is an unstructured environment, so different to the social one we are accustomed to – which accounts for much of the stress in trading – unless you align your beliefs with the market that is.

“He does believe in the quality of information, but states you can’t trust news headlines, analysts or company managers. “You must do your own research,” he says – agreed.

The bottom line for Van Dam, with the Million Dollar Traders program though, is not to encourage trading at all. “Actually a lot of people who are trading shouldn’t be trading. This is not a PR exercise for the industry.”

Short term gold picture

Newmont, the Gold ETF (GLD) and gold itself have completed rally’s and (potentially) bearish pennants on the weekly charts.

Gold may face selling pressure in the short term as price meets overhead resistance. Also there are a couple of contrarian indicators which I spotted in this month’s issue of these popular magazines.  Purely on balance of probabilities lightening positions, so as to add a second LOIL in the SIPP.

Trades on: Robusta Mar 09 buy 1/5 at 1,591 this week.

This article suggests a contrarian approach versus Goldstock Newsletters Bullish consensus.

Trading price not indicators is key

I have had a look at some trading books in my collection and realized my preferred approach is to trade off price, not indicators, using trendlines, pattern breakouts. A copy of Curtis Arnold’s PPS Trading System and a video from Bennett McDowell’s Tradingcoach.com made me realise this. These two pattern recognition systems were automated in software (expensive) but the basic principles are not difficult to apply with a pencil and ruler to a chart and this seems a better way to learn them anyway.

I will apply these tools this year and note here the findings.

2009 soft commodities trades. That Soybean trade was profitable, though did not open the trade signalled by the ema. Now facing resistance at upper line, may be still worth a trade.

Sugar, looks good above trendline and will coincide with ema breakout.

Short Cocoa below trendline, long above upper line.

Robusta in doldrums after good crop. Likely will go higher with rest of soft commodities. $DJASO, group chart has broken trendline nicely to upside, does not look like it will breach $40, as support for all of above trades.

Trading Commodities in 2009

Both potentially poised to move higher – The top chart, softs composite has broken down trendline, cotton and coffee are looking like they will move higher.

Bonds reverse today.

Low volume stocks rally today, the last trading day of 2008.

Resources

Useful commodities news link

Useful research essays zealllc.com. Some of the best I have read over the years:

For anyone in doubt we are in a trading range environment for general stocks:
see second chart in this essay, penned January 2008.

In fact, these depressed prices are likely to snowball into yet another severe supply pinch. We are already seeing widespread production cuts not only in the oil industry but the mining industry. Many operating mines cannot profitably produce their metals at today’s prices, causing production stoppages. And many development projects are being put on hold not only due to these low commodities prices but the dried-up credit markets and lack of investor interest in equity offerings.

While things are quiet, become aware of the Long Valuation Wave thesis

Targets for 2009

Objectives:

Read Profits in Commodities by WD Gann – now this I am assured does not contain any other-worldly theories, or angles – but just good advice by the look of the preview.

Scale into Oil Services stocks (RIG, ETF – IEZ) and agricultural ETF (MOO).

Read Exxon Oil Outlook 2030

Scale into agricultural commodities, probably coffee, sugar.

Watch precious metals – looking at the non US Dollar denominated Gold prices, we’ve seen new highs in recent weeks (what commodity correction?). Palladium (relies on car production) near decade lows.

Watch stock market – may rally but equally may fall to new lows in first quarter.

Overall, excellent long opportunities in most commodities in the first half – hoping to catch them.

Good luck in the markets and life for 2009!

Highlights of 2008

I started the year very bearish on the main indices – and made a good short trade on the DAX30, Germany’s flagship stock index in January after viewing the global stock market situation, Short trade 500 points

Then in February a long in London Sugar netting £867 using my usual scaling in technique, it ended up as a 4/5ths position long from 316, out at 340 something.

The first quarter was a good time to be long pretty much any commodity.  Every day saw new highs in a range of commodities and I was positioned well in Coffee (traded from 138.00 to 162.00 average for a gain of over £1,300) and Cotton (over 9 trading days, incl 3 limit up for £1,410) to take advantage of what turned out to be the last gasp of a multi-year cyclical bull market in commodities (within a longer term secular bull market).  All said, the account was up over 300% by the end of the first quarter.

When the individual commodities I had been trading fell off one by one, then it was time to take a break and that turned out to be an extended break from trading until now.  I had tried some short positions which worked out well.  Short Gold, trading off the $1000 mark (short off the 9 day ema from £984 to $930ish) and Wheat (short $2) off its parabolic rise for some good gains.

Silver was a difficult trade and one which lost some precious capital, a swift move down by $2 from my opening position at around $14 saw quite a large drawdown in the account, though I did not try to catch the falling knife as it eventually registered a low in the $9s.  Precious metals stocks took a serious pasting, with some leaders of the last few years down 90%, including Silver Standard (SSRI) which is in fact recovering a little now.

As commodities had cooled off in the last two quarters I tried a couple of short stock trades, tracking and then trading Apple from $175  with a target of $100 which it soon met (after it retested $200 that seemed to be it), but it was always going to be a difficult short to catch.

All in all it has been an incredible year to be involved in the markets as a participant.

2008 year in review

Commodities Big Picture

Shaping up for a sideways trading range / rally from these levels.  Either way, looking at the very long term chart the downside appears very limited.  RSI/MACD divergence against price.

That is some fall off, 200 is the Maginot line in the sand, closed at 215.28 on the 26th December.

Likely sideways action for 2009, though I believe that there will not be a better time to be long commodities in the next decade than there will be in the first half of 2009.

More selling in commodities

Coffee is testing lower today at 108.00 and oil is also shedding a couple of Dollars and it is not mere Dollar up / commodities down action.

Soybeans are up today, trade open if exceed todays close tommorow.

Fundamentals unimpaired

T Bond bubble

Current thoughts;

T Bonds are overbought, there is a Proshares ultrashort fund ETF.  They may stay overbought for sometime but have only been so overbought to same degree as they are now, 5 times in last 30 years.  Mean reversion trade.

There is a leveraged oil ETF, SOIL which has lost 95% of its value this year down from $80 to $6 now.  Potential buy and wait trade.

Review of $VIX, looks like will retrace to 50 dma, then spike upwards again in 1sr quarter, meaning current rally in S&P index has limited duration.

Gold Bugs index ($HUI) has rallied 100% from 150 to 300 in last few weeks.  Will probably pull back a little short term.

Softs will base for some time but will be a good buy in 2009.  Would like to buy position in Arabica (KC) at around 100 c.

Best looking trade at moment is potential breakout higher from basing/volatility squeezes in grains, softs.

Current fall in commodity prices will ensure higher prices in 5 years due to lack of investment.

Reflection

Gold oil ratio – chart of the moment

Ag commodities are falling in price as are the softs, coffee, cotton and sugar.  Coffee is just over $1/pound, cotton is just under 40c and sugar is $10.50.

Coffee world carry over stocks are lowest for 50 years.

Quote from forum post for reference:

“What do you guys think about the news out of the “National Federation of Coffee Growers”? They are essentially proposing to buy Starbucks and to build large coffee stocks to support prices. Here are some quotes:

“We are going to participate more aggressively in the market to build stocks in the next few months … the idea is to accumulate coffee to support the price. It is not so difficult as there is a world deficit in coffee,” Silva said.
“To impact the market, we need to accumulate around 200,000 sacks,” he said. “Until we have a renumerative price, it is better to store coffee than export at a low price.”

http://www.reuters.com/article/marketsNews/idUSN2345796320081123

Seems like bullish news, but I don’t know how credible the NFCG’s statements are. Thoughts?

Virtual ETX trading

I have not traded in some time but was tempted by the ETX competition – happy with catching move down in S&P when failed at support, this will rally like there’s no tommorow before Christmas, probably.

I note Apple is at $80 and Nikkei at 7,500.  I suggested a short sale of Apple in June/July from $175.  I am putting together a “year in review,” of best trades.

Reversal day

Today, sentiment shift, time to re-enter long side trades.  Possible Dollar reversal.  Large gains today bode well for coming weeks.  Prices likely reached basing levels.  Will power higher from here.

SSRI $6.31

IEZ $29.00

GDX $18.09

BHP $33.86

Gold/silver

Thinking more downside maybe gold below $650 and silver around $7.50.

Silver to gold ratio

Silver to gold ratio, looking like silver is one to follow for % gain wise.  Meanwhile Amazon hits $50 target.

Panic over?

This does look like a v-bounce, 50% retracement of move down to 850.

I was a little annoyed at closing out at $77 when the next day it was $100, but not so bothered now.  Bought this one over a year ago, buried it away, so had to wait for it to come to fruition.

This video is December 2007 but it is well worth a watch, ’til the end.  It truly surprises me what Bernanke is saying here – is relative purchasing power not important.

Apple meets target $100

Commodities are really looking like further to fall now, so watching for now and trying to spot and short opportunities, though markets a bit volatile to properly trade, for me at least.

FT article in Special Report

Nice article in FT and on FT.com quoting from spreadtrader.wordpress.com.  You may have to register with FT.com to access the special report.

Watch for a collapse

There are many words of wisdom to be found in texts written by pragmatic, worldly people who happened to get something down in writing before they signed off. Musashi is one of these, here is something relevant to today, in the markets, watching for a collapse, in poise, a loss of rythym here.

I’ve had a bit of time to check out some of my trading books recently here is a good quote from Larry Hite in Market Wizards, “two basic rules about winning in trading as well as life, (1) if you don’t bet, you can’t win and (2) if you lose all your chips, you can’t bet.”

No trades on at the moment, commodities maybe nearing an end to their consolidation soon.  As many have asked, If you want to know my trades on the day I make them, join the email list, just put your address and first name in the comments box (don’t worry its private and won’t be published).

Commodity conundrum

Couple of interesting charts, above, really nice low risk trade opportunity here, this is offered as an ETF, it is equal weighted coffee, cotton and sugar product, but I usefully use it as a barometer as to when a trade in the softs might be good from the big picture viewpoint.  Coffee near support in the low 130.00s (Arabica) so to is Cotton at 60c, one to watch.

Below lumber which is in the doldrums, very near very long term support, one for value here.  This reminds me of corn when it was at 190c a few years ago, a one way trade – but how long will the wait be?

Amazon short

Thursday was a bearish day, and the last hour of trading on bearish days tend, I have noticed to have the biggest declines of the day.  So, I had a go at a quick short sale on Amazon that I’ve been watching for a while.

I began selling at ten past eight at $74.37, and was watching the 2min (above), 10min (below) and hourly charts.  It was rallying still but I thought it was going to go no higher than the 50ma on the 10min chart, beyond that it was just waiting.  I chipped in and out a couple of times and then closed out just before close of play.  Just as well because it rallied nearly 6% today.  Nice smallish profit but was a good technical trade, see bollinger break also at $78.00, ideal short point here, indicated by lower bollinger band,

How about that Wednesday has biggest one day advance in Gold since 1980, today stock market has biggest one day advance ever.  See the bollinger breakout in gold, ideal long buy order point at about $770, up $89 on the day.  Now thats a short squeeze.

Direction wise, stocks on the edge of a knife, but with huge volatility, it could mean interim low is in, tradable xmas rally on the way, maybe.  Commodities wise all this intervention has to be inflationary in the medium term.

“Speculation as a fine art”

“I have done my share of trading and have kept fairly well
posted on the stock market for many years and I can say that I
do not recall an instance when a bear raid caused a stock to
decline extensively. What was called bear raiding was nothing
but selling based on accurate knowledge of real conditions.

But it would not do to say that the stock declined on inside selling
or on inside non-buying. Everybody would hasten to sell and when
everybody sells and nobody buys there is the dickens to pay.
The public ought to grasp firmly this one point: That the
real reason for a protracted decline is never bear raiding.

When a stock keeps on going down you can bet there is something wrong
with it, either with the market for it or with the company. If
the decline were unjustified the stock would soon sell below its
real value and that would bring in buying that would check the
decline. As a matter of fact, the only time a bear can make big
money selling a stock is when that stock is too high. And you
can gamble your last cent on the certainty that insiders will
not proclaim that fact to the world.” Reminiscences of a Stock Operator (1923).

Golden hammer or golden scythe?

Made nice short trade in Amazon yesterday, bought silver.  Time to buy in those Apple shorts.

Got some good thoughts on trading this week, to post Friday.

Very interesting trading week.  Good article.

Avoid a cashatrophe

This book is good on developing a trading approach, page 290 on for 82 TRADING RULES AND MARKET OBSERVATIONS in the preview.

Just sit and watch