COTTON STILL FAR FROM MAKING HISTORY...

It is quite interesting to note that the prices of cotton in New York hit high of $1.1198 per pound on 15^th Oct which of course was the high back in 1995. But it is yet far from making historical high. Back in the 1800s America was the leading exporter of cotton and essential for the economy of Europe. During the American civil war back in 1860s America south used to supply 77% of 800 million pounds of cotton consumed by Britain. During those times the British Empire declared neutrality in the American civil war, and this diplomacy created 2.5 million bales of cotton being burned to create shortage to exports to Europe. So the exports of 3 million bales were cut to mere thousands. This made the prices to soar to the highs of $1.89 per pound in 1863-1864. This made the British turn to India, Egypt and Brazil for their deficit in cotton supplies.

Coming to the present scenario, lot of emphasis is being given on the supply deficit and the stock to use ratios. This month the USDA reduced their estimates for 2010/11 ending stocks by 772000 bales (0.169 metric tones), and cutting the world production estimates by 273000 bales (0.059 metric tones) from 117.0 million bales (25.47 million Mt. Tones) to 116.7 million bales (25.41 million Mt. tones). The USDA has been estimating that the Chinese production would be cut by 15% compared to 2007/08 levels to 6.9 million Mt. tones. India, to much extent will be balancing this deficit with production of around 5.7 million Mt. tons compared to 5.1 million Mt. tones in 2009/10. To be very true BT- cotton has turned the total scenario of India’s cotton production (keeping aside the controversies). The main trigger for the recent spurt in cotton is the ending stocks of world and to a large extent China. The world ending stocks have been estimated to be around 44.7 million bales (9.73 million Mt. tones) compared 46.7 million bales (10.17 million Mt. tones) back in 2009/10 and China ending stocks at 14.7 million bales (3.20 million Mt. Tones) compared to 18.2 million bales (3.97 million Mt. tones) in 2009/10.

If the consumption side has to be considered then there has not been any increase in the consumption over last 3 years. If the world consumption figures have to be considered then they stood at 27, 26.9, 23.9, 25.6 million mt. tones in 2006/07, 2007/08, 2008/09, 2009/10 respectively. The 2010/11 consumption has been estimated to be 26.3 million metric tones in 2010/11, which is actually a decrease of 2.6 % compared to 2006/07 levels of consumption. Over the years the consumption and the production are very much balanced with very few variations except in the levels of ending stocks which stood at 13.5 million mt. tones in 2006/07 and current estimated at 9.7 million mt. tones.

Statistics reveal that consumption of cotton has reduced because of the shortened summers in the west. With the cold becoming longer and severe the demand of cotton is slowly declining. The short summers do not encourage any spurt in the demand for cotton fabrics, except for the eastern tropical countries.

Looking at the ending stocks sorry state the world is eyeing India the second largest exporter to fill up the stock deficit. India has already postponed the fiber exports registration to Nov 1^st as against Oct 1^st earlier. With Indian fiber exports requiring registration for exports, the Office of Textile Commissioner reported that all the 5.5 million 375 pound Indian bales available for exports have already started the registration process. The export from U.S has increased to 3.4 million mt. tones (estimated) from 2.6 million mt. tones in 2009/10. Australian exports have increased from 0.54 million Mt. tones in 2009/10 to 0.61 million Mt. tones this year. Even Argentina has increased its exports by 54% to 43544.87 mt. tons this year. These minor exports are somehow maintaining the balance in the demand and supply chain.

Right now the government policies will be eyed continuously for any further spurt in prices. Rests the economics of supply and demand are pretty much balanced.

CRUDE OIL IN DIRECTIONAL CRISIS...

Crude oil prices have been recently facing some directional crisis for months now. Some significant facts over why this is happening.

Demand:

1. China’s demand surged by 8.5% by the end of August 2010. The pricing mechanism of China made hoarding of stock very rampant, as the country had a system of aligning their benchmark crude oil prices with basket of international crude, if the prices fluctuate more than 4% over consecutive 22 days. The coming rise or fall in the domestic prices could be easily gauged by the traders. Now under the new proposal (pending implementation) the period will be halved thus discouraging the hoarding.
2. India’s demand for petrol has increased by 11.4% mainly due to 33% increase in monthly car sales as on august 2010. Diesel just showed a demand growth of 3% because good monsoons and less power outages.
3. Demand in North America rose by 2.6% year-on year in august 2010. There have been no significant reasons for this minor surge in demand.
4. Iran’s gasoline imports reduced significantly by 15% due to the new sanctions imposed, and also due to rationing of gasoline followed by reduced subsidies on gasoline prices. Iran has been producing gasoline itself, but at the cost of other petrochemicals that it produces and export which in the long run will hurt its economy on both sides.
5. Europe showed a demand surge of 2.7% in august 2010 compared to last year. This surge can be contributed to continuous demand from Germany and France for heating oil for their coming winter demand. Germany in particular increased its heating oil deliveries by 114%.
6. Japan’s overall demand rose by 4.7% and that of Korea by 6.6%. This demand was mainly because of warm weather conditions, which surged the power demand for air-conditioning.

Supply:

1. Global oil supply has decreased by 150 Kb/d to 86.9 Mb/d as on September due to lower non-OPEC output.
2. Iraq this month announced an upward revision of 25% in its crude oil reserves to 143 billion barrels. Its exports have also increased to 2.52 mb/d since the coalition’s invasion in March 2003.
3. Iran’s crude oil output reduced to 3.68 mb/d. Iran has crude in floating storage of around 33 mb which no doubt is 17mb less compared to last year around this time. With the sanctions in place the refiners and traders are not able to arrange for bank finance and insurances, Iran still manages to sell its cargo shipments to certain European companies at really steep discounts. Also to note that China has increased its imports of Iranian crude oil taking advantage of their steep discounts as the country is reeling under economic turmoil due to sanctions.
4. Russia which does not allow access to oil fields except to state owned oil companies has been sending feeler that it may allow foreign companies access it oil and gas resources. The decisions are yet to be finalized. It is also very keen on starting its offshore development in Arctic and Barents Sea.

With all these facts in place crude oil has yet to set a directional move. A close watch on prices will give some convincing results over some days to come.

BOOK QUICK PROFITS..ON ANY RISE OR FALL IN PRICES..DONT STRETCH YOUR LOSSES..

Good morning to all my readers. I am really very sorry that I did not have my article last week, as I was at the Gold convention at Goa. The scene at the conference was bullish, bullish and more bullish…so they would simply love to see the gold prices to rise with not even the clouds in sight. I mean, does something have an end to it?? The claims were simply unbelievable…$1000 to start with then $ 1200 and then $1500. I must say that with such prices we are talking like that we would be consuming all the gold in the world...and even eat and drink gold... As I hade mentioned in my previous articles that the major driver of gold prices in India is the rural market. If the farmers do not make money from the crops that they have sown, they won’t come in the market and buy gold as they have already lost their money in sowing their crops twice or thrice. I bet that many of the readers are farmers themselves so they will be the right people to give me this answer.

The presentations were decent enough with analyst from all over predicting the prices to reach sky high and the analysis were unique in their own sense. There was a presentation that said that in all the odd years in the month of September gold prices were at their peak highs but what surprised me is that the time period was limited to only to 5 years. What about the period before 5 years. If the analysis has to be made then at least a historical view of 10-15 years should be taken into consideration. All I would definitely say, that if you are trading gold, whether long or short side of it, make sure that you book your profits at regular intervals rather than holding the position for a long time. And I hate to say this but long time means only a day or two. Because gold is such a commodity that it will show the investor the sky with its price but will also pull the carpet below the feet at the same time.

Another commodity that is still the fancy of most of the investors- natural gas is showing some signs of recovery. Now I am really very sorry about the investors loosing their money in their natural gas trades and I tried my level best in helping them by setting up stop losses that could have saved them from huge losses that they have already made. Now that the prices are up for the time being, I still wont be comfortable to trade in it. If you tell me that I am scared of trading natural gas then I won’t deny that fact, because natural gas is a risky commodity and I do not rely on my luck to try to make money in it if I am not convinced with my analysis. Natural gas is still in wait and watch situation and now is not the right time to pull out your swords and rush into buying. Wait for the clear signals to come in and let the charts speak for themselves then it will be the right time to enter into it. There are investors who call me that they see an opportunity in natural gas because the price gap between every contract month is more that Rs. 50. If that is the case then there are so many commodities that have price gaps in their contract months then why are their prices falling? Natural gas is an internationally traded commodity which has global presence like crude. Is anyone aware of the fact that there is a country (I do not wish to name the country in this article for some reasons) that produces natural gas and has a cost of $0.90 per mmbtu? Now even if the prices of natural gas in the international market is around $3.233 per mmbtu then why would that country be bothered to have high prices where it is already making more than 3 times its cost? Now I guess it is time for you to think that why the prices of natural gas has come down so drastically. I do not wish to put forward the reason why the market expected the prices of natural gas to go up, because there is a reason to it and I know it very well. All I will say that it was simply a guess work that if such and such even would have occurred then the prices of natural gas would have gone up.

There are chances that the prices of most of the commodities would take unexpected turns around 15th September. It is a possibility and my analysis is based on lots of factors and any one not in favor then it may not even happen. So I would only say to my investor to please be careful with your positions and if you see any unusual movements in the prices during that time try not to hold the position for long. Happy trading week to everyone…

RAIN CREATING PANIC SELLING IN ALL COMMODITIES CREATING A TIME GAP...SE A BUYING OPPORTUNITY

Good morning to my readers. As I had mentioned last week that the markets will be volatile it indeed was. Now this volatility is what most of the analyst would say is in their favorite language “Overbought” and “Oversold” which now has become a very common word among investors in the market. But what most of the people fail to realize that overbought and oversold conditions can prevail in a market for a long time and waiting for reversals is far much better than taking a position and hoping for a reversal. Hoping for reversal will cost you margins and even losses on expiry of contracts. But taking a position after the confirmation of reversals is far more recommended. I do not wish to hurt the sentiments of my readers who indeed had put in their hard earned money in the markets, but what has really surprised me that even after my requests to people to exit their positions and book their losses they went ahead and continued holding their positions which caused them huge losses. I really appreciate my readers calling me and asking to give them a future direction in their positions. But I also had said earlier that all I can do for you is to give you a stop loss so that I can minimize your losses because most of the times I receive calls from people who are caught on the wrong side of the market. Of course I want my readers to make money in this market, but if you do not follow the stop losses in a disciplined manner how can I help you.

In the month of august we witnessed the commodity prices rising to unprecedented heights. But I would not like to call it overbought, I would rather call it panic buying, and believe me those who had buy positions in this panic buying are now in panic selling situations. The rains have indeed turned the situation for all the crops and the physcology of the markets have now turned to higher crop output. But what I need my readers to understand is that even if the rains have come in late the crops that were sown earlier have already suffered. Now that the new wave of rains hit the country the farmers are again going in for fresh sowings which obviously creates a situation of late harvesting. Now in this situation if the crop arrivals are delayed then this panic selling will automatically turn into new buying opportunities. I do not say that the prices will simply shoot up to new heights but they will again rise up to meet their resistances at older highs. What investors need to watch now is not the opportunity to sell in this market but wait for confirmation of reversals and then buy for smaller profits on the buying side. If you wish to sell any commodity now at these prices you will be looking at very small profits against big stop losses.

India is not facing any drought situation lets be very clear on that, because if a drought situation has to be declared then the country should have only 25% rains in the whole monsoon season. That is the right definition of drought. So if the news channels keep on flashing drought all the time, you need not panic but what is really a sorry state that the news channels create such a hype of anything without even cross-verifying any details. The race is simply on to be the first to flash the news. The country has till now received 70% of its rains and we still have time till mid September. The perfect time to take any position will be after 9th September because by then the rains will be all over and the real crop situation will be in front of you. At that time you won’t be caught on the wrong side of the market. There are very few commodities have the selling potential so please be cautious in selecting those commodities. Have a happy week trading…

THE VOLATILITY WON'T STOP FOR THIS WHOLE MONTH...

The volatility in the market is giving everyone sleepless nights. With commodity prices hitting upper and lower circuits on the same day it is very difficult for anyone to catch a perfect trading trend. I know since last two weeks I have saying the same thing that the markets will be volatile and to trade carefully. But if it is the case then I cannot change the truth of it, the markets are volatile and they will remain till mid September and by gods grace if you are lucky you will make money. Believe me it is your luck that is giving you money in this volatile markets because it is very difficult for any analyst to predict moves in this market on intraday basis. How much ever they try the stop losses will be hit. Let me put a very hard fact in front of you, not everyone can afford to make money in this market. It is only a few who follow a discipline can make money, because if you do not have control on emotions you cannot make money. Till the time an investor does not learn to book losses they won’t learn to make profits in a disciplined manner. I have learnt this lesson myself because when I started in this market even I was making the same mistakes. The general physcology of the investor has not changed as yet so they cannot hold any position for a long time as they know that if the prices of commodities are rising they will buy it but will not have the conviction to hold on to it because it is expensive and there is a scare that their positions are very risky to hold at such high levels and they will sell off and book their profits. I bet most of the investors are doing this in the market.

Coming back to rains as I had mentioned last week that if we do not receive rains by this week then we will be having only withdrawal rains. But now that the rains have come in they have come in with a bang and I am a bit scared that maybe Bihar will be facing floods again. You have already seen the devastation in China with the typhoon and I won’t be surprised that east coast of India will have some heavy rains and winds which means Orissa, west Bengal and Bihar. And the funniest part is that in the past history of India when Vidharbha region in Maharashtra had received the drought relief funds after that the same region had floods immediately. That’s why I have never been dependant on our MET department when they come to predict the rains. The MET department has never been right in their prediction because it is not their mistake but the infrastructure is not enough to allow them to predict the rains accurately. They are really in a very sorry state.

The crop figures have not come in as yet and there are many doubts in the market of what the crop figures going to be in future. The last whole week sugars has been in focus and believe me the investors in India are definitely cursing the government of banning that commodity, because they could have made some good money trading on the long side. But my dear readers I have a strong feeling that by September you will see the sugar prices falling like a pack of cards, because the prices are overvalued and there is no way that anyone will consume such expensive sugar. I feel by now the consumers of sugar will start having diabetes with the shock of hearing sugar prices forget consuming it. I am still of the opinion that I do not have any commodity to trade or suggest to any of my readers as I had said earlier I cannot challenge the rain gods and take any risky position in this market only to loose money. All I would say is try your luck trading but do not stretch it by having large quantities.

RAINFALL IS DEFICIENT TILL NOW...WITHDRAWAL RAINS IN SEPTEMBER OUR LAST HOPE...

The rain gods have not been very soft on us this year. Now is the time that we can say that the rains are deficient. If by end of this week we are not receiving some good rains then the only rains that we will be experiencing now is the withdrawal rains in September. The effects of these can be already seen in the prices of the crops. I had some researcher from South Korea who sent me the report regarding the rains being less in India this year. They have been saying that India has problem and the clouds are not entering the landmass. Most of the pressure is being directed towards china as they are facing the trouble of typhoons. It is clearly evident that the pressure zones have shifted towards china and there is a possibility they may be facing some floods. The government had tried its hands with cloud seeding over Madhya Pradesh and Maharashtra but they did not help much. But such is the dilemma of our system if a permission of cloud seeding has be obtained then the process takes 1 month of total approval from all the authorities. One thing is for sure that the government was very late in taking the decision on cloud seeding program, or by now we would have not faced the situation that we have been facing now of no rains.

Cloud seeding is a procedure where in a chemical silver iodide is released in the environment which will make the clouds rain. When we had sufficient amount of clouds the MET department did not take any action and waited for the natural action of rains to take place. It simply does not make any sense now because cloud seeding works only when we have clouds over our heads. Without clouds even cloud seeding does not work. It is really a very sad situation where our own weather experts have to subscribe to international agencies to predict our rains where it is so well known that India as a country is highly dependant on rains.

The worst affects can already be seen in Gujarat, Rajasthan, Uttar Pradesh, Madhya Pradesh, Haryana, Punjab and most of the northern parts of our country. Maharashtra has been a bit lucky along with the southern states that have received the initial rains. The commodity prices have already been sky rocketing with no end in sight. Now the biggest problem that the commodity prices are facing is that most of the commodities have reached their all time peaks and now the markets are in a wait and watch situation as where will the prices head now. The skepticism can be clearly seen as the prices hit the upper circuit and the very next day lower circuits as the speculators are scared to hold any long term positions. They simply do not wish to carry their positions overnight.

The weather conditions that we are having now can turn directions for various commodities.Commodities that will take their direction up due to deficient rains:
Guarseed
Guargum
Sugar
Castor
Wheat
Rice
Commodities that will take their direction on the downside due to high prices and lack of demand, as they are very much driven by consumption and these commodities do not perform well as they are not considered essential for survival. A cut in consumption in these commodities does not pinch a lot.
Crude oil
Gold (if the farmers do not make money they wont have money to buy gold as gold is the only investment they believe in)
Silver
Spices

Now as far as trading is concerned I have been very cautious with certain commodities as I had mentioned earlier that the rains by the mid of august will help me analyze which commodities to trade. Now I am very much clear in my research and I am ready to trade. I urge my readers to make sure that even if you feel bullish or bearish of any commodity make sure that you trade in small quantities because I still would like to warn you that the volatility will not end till the end of September. Wishing you happy trading and a profitable week.

MAJOR PRICE LIMITS ARE HIT. MARKETS TO DECIDE WHICH WAY TO MOVE...

The markets have been quite volatile last week and many investors have been caught on the wrong footing after the major fall in prices of most of the commodities. The biggest dilemma has been that when the prices came down everyone went short and the very next day the prices recovered back. If you have guessed it by now then good, yes I am talking about crude oil. It fell from the high of $68.99 on 27th jul to make a low of $62.70 on 29th jul and the very next day it was again up to give a close of $66.94. usually if the prices of any commodity fall so drastically and the other day if the prices do not fall with the same intensity then it is advisable that you book your profits and exit the market. If not profit book a minimum loss and simply exit and watch the prices. Do not hold the position with a rigid mind, because believe me having a rigid mind for a position can make huge losses.

I have been receiving calls from many readers asking me about natural gas. To much of my surprise investors have been holding natural gas position as if it is a replacement of gold. They ask me what is going to happen in natural gas and my answer is simply to give them a stop loss as I know all of them have bought at unbelieveable prices and have been holding it with huge margins being debited to their account. Why would someone make a mistake of buying natural gas when the fundamentals are not in its favor?? I am really very sorry to say but I request the investors not to mix up my opinion or figures if they have taken a position with the opinion of others. If anyone is suggesting you to take a position it is but obvious that the same person will give you a stop loss. If you try to match up my stop loss with the stop loss given by any other analyst there is bound to be a difference and it will confuse you as you are the one who is investing your money in that particular position. I can only try to minimize your losses but cannot turn that position to a profit making trade as it is not possible.

The markets are going to remain very volatile and I request you to trade in very small quantities. The bulls and the bears have been fighting it out in the market and you really do not know who is going to win. Let’s put this in a simple manner that most of the commodity prices have hit their higher limit prices and some of them their lower limit prices. Believe it of not the solar eclipse has reversed many prices in the market if you really want to cross confirm then match the dates of the eclipse and the price movements in the commodities. You will see major reversals around those dates.

The metal prices had also fallen down drastically on Wednesday and it scared everyone to a major sell off in the markets. Even the Chinese stock markets were down, but what is interesting to know that if you look at the charts of the Chinese stock markets they have rallied from the low of 2037 on 3rd march to a high of 3453 on 29th July. The prices have rallied for 5 continuous months without a single correction then it is quite expected that the prices will fall. Then this fall is actually a correction and not a collapse. There is no reason to worry as hyped by the TV channels.

For all the investors who are still short in crude then your stop loss will be 3250 on closing basis. If the prices close above 3250 then exit your positions the next day. I am writing this article on Friday so if by Monday the prices have closed above 3250 then I request you to please exit your positions and book your losses. If you have your position in gold then wait for the prices to close below $909. if the prices of gold have to fall then they have to close below $909 for two continous days. If they do not then exit your position and wait for the prices to close below $ 865 to sell further but make sure you have your stop losses confirmed. In Indian prices right now your stop loss in gold is 15375, which is equal to $960 more or less in the international markets. Silver will have a stop loss of 22911. natural gas as most of the investors are long your stop loss will be 171.65 on closing basis.