Saturday, July 14, 2007

I know nothing about Oil

Sad.... but true.

Had picked up on oil bottoming at $61 a couple of months ago. Expected it to get to $80 by Jan 08. However, have been surprised by the pace and extent of its price movement. Nearly $74 yesterday, with no end in sight. As a result, haven't remained invested in it, made scraps here and there, but nothing much to shout about.

I realise that I always get fazed by its volatility. My biggest fear is to buy at the top, and then get clobbered. In hindsight, had I stayed invested in oil continuously over the last 2 months, I'd be up close to $20K with just 2 contracts. Kicking myself - I saw the opportunity, but didn't capitalise on it.

Now, I see a rally developing in Gold (up $12.5 this week) - of course, even though I commented on it a while ago, I haven't done anything about it. Need to get a grip, and get a plan going.

Wednesday, July 4, 2007

Oil's not well

Exited my oil positions today - left it about 20 points too late, but c'est la vie. Charts show a bearish divergence - lets see what Thursday brings.

In the meantime, Gold is not encouraging, neither is the XJO. Guess, I'll check out the currencies, or else just wait it out.

On another note, finally was in a position to withdraw $1000 from my trading profits, and returned it to My Woman. After selling my oil positions today, I'm now in a position to withdraw another $1000. Never thought I'd see the day - just over a couple of months ago, I was down to nearly 40% of my capital, and very miserable.

Trading the first month of FY07-08

Not quite sure where equities are going just yet. I would prefer to trade a clear 100 point move, and since I'll probably get in 50 points from the bottom of the move, and exit 50 points from the top - that's a total move of 200 points that's needed. Right now the XJO is moving about in an 100 point range - not good enough for me.

Since the XJO takes direction from Wall Street, and since I don't trade overseas indices (not yet anyway), that means that the Street is undecided about where its going to go.

Have worked out a rough model of what I'm going to be looking for to see strength in the market:
  1. A strengthening of the Dollar Index - for me this means a weaker USDJPY, signalling the return of the carry-trade; and lower bond yields signaling moderate inflation
  2. That should usually be accompanied by a weakening in Gold prices, and a rebound in base metal prices.
The one market that I've been surest about this week is Crude Oil. Have several long positions, at an average of 7040 (WTI August 07). Hopefully, it gets to 7150, which is my immediate profit target. The weekly inventory report, due on Thursday, I feel will be bearish - with bigger builds in crude and gasoline, and better than expected refinery runs. Of course, I have no evidence to back this up, but I just feel its nearly time for Crude to correct to a mid-60s level. In any case, I intend to be long when the report comes out (if my target is not reached by then).

Wednesday, June 27, 2007


Have been on the sidelines this week. No positions in anything, anywhere. Exited my positions in Gold (Aug) last week and Gold (Spot) this week with small profits.

I'm trying to make sense of the massive increase in liquidity around the world. This article tells me that, if History is anything to go by, it won't end well for the developed world.

I would like to compare the properties of economic power with that of water. In my school days, I learned of the propensity of water to find its own level. A container of water has 2 compartments with a tap connecting the two at the bottom. The tap is closed. Water is poured into one compartment till it reaches a level near the top (say, level L1). The only way for more water to be held in the container is for the tap connecting the 2 compartments to be opened.

When the tap opens, 2 things happen: the first is that water rushes in to fill the second compartment. In my economic power/water analogy, opening the tap is akin to the concept of globalisation - and economic power started flowing from the container that has water (the 'haves', like the US, UK, etc.) to the compartment that doesn't (the 'have-nots', like India and China).

The second consequence of the tap being opened is that the level of water in the first compartment falls! In my analogy, this means that the 'haves' become worse off - in the real world, this translates into a loss of jobs, technology, etc. To keep the level of water (economic standards) at its previous high (level L1) in the first compartment, the flow of water into it must increase at an equal, or higher, rate as the transfer of water from the first compartment to the second. In the real world this could be taken to translate into credit expansion. However, since the propensity of water is to find its own level, more and more water finds itself into the second compartment. The relative distance between L1 and the level of water in the 2nd compartment keeps on narrowing - in fact all the increase in water in the first compartment goes into filling the second compartment.

In other words, the worldwide expansion in credit is the only way for the West to maintain its standard of living and economic power. At this moment, judging by the way asset prices in the developed world have jumped from their historical rate of growth, I'd say that the addition of water into the first compartment is faster than the transfer of water into the second compartment.

The consequence, in this theory, is that either the credit expansion will slow down in a hurry (or else the first compartment will overflow, and no one likes to clean up a mess), or this increase in credit will increase its speed of transfer to the developing world - or both. In any case, I need to get my act together on investing in developing markets right away.

As money in the developing markets increases, their demand for energy, metals and food will go up exponentially. Hence, my strategy needs to be focussed around these areas.

Sunday, June 24, 2007

Double Tops Galore!?

The scenario of synchronised double tops all over the place.....??

So ..... is this the beginning of a correction? A couple of reasons:
1. Subprime mess + slowing growth in the US; and its knock-on effect on the rest of the world
2. Inflationary fears fueled by higher oil and food prices

Lets see what happens when the index meets the 50 day MA.

Friday, June 15, 2007

Time to buy Gold?

Stock markets are rebounding - despite that fact that bond yields are at 5.2%+/-. I suppose this is all very encouraging. However, the XJO bounced back off 6150 - and my guesstimate from the weekly chart was that it would drop to at least 6050. So I'm not sure this 'correction' is quite done yet.

What I have done, however, is buy 1 Spot Gold contract. Had figured a bottom of $644 at the trendline - it went down to $643.25. Of course, I didn't have an order in then. Went long finally at $648.25 (actually $646.75 + $1.5 IGM spread). Looking to go long Spot Silver @ $12.97.

My reasoning is thus: if there is a cartel selling Gold to suppress the price (as some suggest), they'd better have a lot of it to sell since India will come back to buy soon - Dussehra is just 3.5 months away - and that means weddings - lots and lots of them. With the economy booming that means a demand for lots and lots of jewelry.

Again: higher oil prices + higher food prices = inflation = higher gold prices.

Saturday, June 9, 2007

Sitting it out

Financial markets have been falling this week - the XJO is down almost 200 points since Monday; however, I'm sitting this out. Part of it has to do with the whip-saw action on Monday that knocked me about; a lot has to do with the fact that these are volatile times and I'd rather watch and learn (for free), than participate and learn (possibly at a cost). Got stopped out of my TTS position along the way. My AGK position is still holding on .... just.

Gold, meanwhile, went from $651 to $671, and back down to $657 (as I write). So is Gold the safe-haven its touted to be, or is it just another asset class? You would expect Gold to go through $700 on this recent manoeuvre by the world markets.

Still trying to make sense of what the future holds - not just next week, but for the rest of the year. The Daily Reckoning, as always, has something sensible to say.