Closed out the gold trade today at $1,103 for a $33 move, caught out slightly by the rebound today after the strong move up in the US Dollar yesterday – which didn’t follow through, yet perhaps.

So a good trade but not that satisfying though interestingly Silver not following through on the move and other commodities falling off, Coffee hard, others Crude oil also falling.  Difficult period which I hope to capture a break lower in all these ‘risk trades’ maybe before maybe after Christmas, but soon.  It will be a good strong sell off which will be good to trade when the time arrives.

Reporting gold making a new high today, long from 1070 today.  More central banks from emerging economies increasing share of reserves held as gold.

Also, note, interesting action in DX today and although stock market is oversold short term gold often surges a day or two prior to a major sell off – against this I still expect new highs in major indices by Christmas.

Last July I was keen to short Apple from around $170, after falling to around $100 it has staged a tremendous rally – will it fail at $200 at second time…See Short Sale Watch section in blog for original posts.

A chart that shows that effectively, the appreciation in Gold price since the start of the decade has been reset via the creation of increased monetary base.

This is a chart of a breakout of volume on the Rogers Ag ETN, from last week, this week even more upside has followed through.  Other Agricultural ETFs and ETNs, (ticker: DBA, DJP) also look to have rounded out a base and are looking up.  This all means potentially nice moves in agricultural commodities from here, personally trying to catch a longer term position trade and scale in.

Most trades have been riding high since the start of October with a tailwind of the recent US Dollar weaknes – a sharp reversal is likely, at some point, but in the meantime it is best to just watch closely and be ready and flexible to close out long commodity and Forex positions traded against the USD.

A recent trade in Soybean, on the break of the downtrend.  Certainly time to be a little cautious after a series of gains in Wheat, Soybean, EUR:USD, AUD:JPY, US Crude Oil and Gold in the past week or two.

A couple of charts of interest -  firstly copper which if it does continue lower from here, which technically it appears to be in the process of breaking down, then it could be advanced warning the ‘bubble echo’ effect post 2008 is nearing its end.

Second is Wheat which interestingly, appears to have near enough completed its downtrend and could a a good point to accumulate a new long position – reference the Weekly ADX extreme low reading.

The much followed volatility index ($VIX) or “fear gauge” is still falling indicating increasing complacency in the markets.  Usefully Proshares offer QID an ultrashort product that fairly well correlates to $VIX which can only be traded in the futures, or on some spread betting platforms.  Personally I prefer the opportunity to purchase it as a share in the Proshares ETF, QID, as it can be done in the pension account.

There could be a bit of base building to be done here – but over the next 2 months a scale in trade looks attractive, maybe adding 1/5 per week, or depending on market action.

Also, will the USD strengthen – I think its possible in the v.near term.

This is truly a lovely looking chart to a technical trader like myself.  Notable features are the supportive 50 week moving average since 2005, breakouts at about $460, $730 – slightly rebuffed at the $850 area (old 1980 high resistance) then on to test $1,000 for the first time in 2008 and rolling over after hitting a high around $1,030 at the end of the run.  Then the mid 2008 anomaly, unwinding, deleveraging – whatever you want to call it – then sense returns and price is supported as a second attempt on $1,000 happens in early 2009 – but it was too far too fast.  Where we are now is a very strong trading point with the recent break north of $960.  Trade it with me, I was long at $960 recently for a fast $30 move, now long again for any follow through over $1,000.

Recent trades in Gold:

More trades and the years results in 9 futures markets available to view at: spreadtraderpro.com

It was expected that Crude oil would sell of sometime soon as it failed to make new highs last week.  A low risk trade was evident on the charts this weekend which I took advantage of, and this could flow through to further downside this week.  Looking back though – big down days such as todays, over 4% have been followed by swift reversals in the following days – at least on the recent run from $50-$70.

This time could be different as the charts have been in what could be called an ascending wedge pattern.   Any close above the recent high and $80 looks likely – likewise a close under c$55 trendline intersect would indicate further weakness.

Trades at spreadtraderpro.com

Some markets have been ramping up quite nicely for some time, stock indices, commodity currencies included.  Theres been a nice bounce in stocks and it may well continue, but by historic measures it is reaching an extended point.

The S&P put/call ratio or $VIX is worth keeping an eye on as it is unlikely to fall below 20 (currently 24ish) – before a sharp reversal meaning a return to risk aversion in stocks.

Other markets are likely to tag along, especially commodities that were not spared in 2008 sell off – the only real winners being cash and Treasuries.

Big name commentators have gone on record to suggest a ’strong dollar’ scenario in the coming months – this has support from the charts – and Eurozone bank writedowns could provide some impetus.

Gold over $1,000 mark? yes, at some point, but a major breakdown before it takes  off in its seasonal rally – November to April time would not be out of the question, given the obvious chart pattern developed since the start of the year.

As I haven’t posted for a while it seemed like a good idea for an update.  Trading has been tricky over the summer with many markets trimming sideways, while treatening to breakout to new highs all the while, Aussie dollar, Gold over $1,000 etc.

Well, as summer moves into autumn things could get choppy again from a volatility point of view, if the rally in stocks fizzles out and more grim economic numbers/writedowns from banks flow through the system it may be time to trade short most markets as risk appetite falls.  The US dollar which recently has been looking more likely to fall to the low 70s (DX index) has in the past week made a rebound and is in the process of confirming a bear trap technical pattern.

So, while many markets may retreat, the US Dollar and Treasury markets could show strength in this scenario.  Timing is of course key, but as we close in on the fourth quarter probabilityincreases that markets that have traded sideways over the summer will break for a concerted move.

Detailed trading history is available for free Spreadtraderpro.com

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

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.

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

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

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.”

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.

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.

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.

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

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!

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.

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.

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.

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.

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?

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.

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

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