THE RALLY WAVE MAY TRAP YOU..TRADE CAUTIOUSLY..BUT WORTH THE PLAY

For all my readers I would like to send a good morning all the way from Brazil in South America, as I am here to attend some work. I am sorry I won’t be able to attend the calls of my readers as I won’t be back before 15th June because after Brazil I will be off to America for some other work. The weather out here is cloudy and it does rain heavily which I suppose is still not the case in India till now. After the cyclone hit Calcutta the clouds have dried out a bit as the satellite images show. But that does not seem to be the case to worry as of now. Rains have already hit south of India as Karnataka has been experiencing some showers everyday. The initial rains that had hit India all over were because of the heat wave and they were not the actual rains that mark the beginning of the monsoon.

Now as far as the world situation goes, North Korea has again started testing their nuclear weapons, which does scare America the most. Even tough America will deny the fact that they are scared they will always try to put it very diplomatically that it is dangerous for the world, that if North Korea or Iran have nuclear weapons. North Korea is supposed to be the most secretive country in the world. It is ruled by a dictator and such a situation is dangerous for any country in the world. Many journalists have secretly shot videos of the situation of the people staying in North Korea and how they suffer the miseries as the country is completely cut off from the whole world.

This news has no doubt given crude the well needed vitamin shot in the arm and after that the prices have been shooting up like a missile. In the beginning of this month crude prices were at the low of $51.55 and after that it has made a high of $65.25. The charts have shown a breakout in the prices which were at the price of $62.65. now when you will be reading this article it will the beginning of the new month of June which means if the crude prices have managed to close above $62.65 in the month of May then this marks the beginning of a new rally in the prices of crude. This rally will continue to the prices of $70.65 which may be a point where crude prices will take a break and show a slight reversal of prices for profit booking. But this can also be a trap rally as I call it because the prices are rallying because of the current geo-political scenario and not because of the fundamentals that are supposed to be the right factor to look into. Historically crude prices have made huge rises when wars have broken out in any part of the world. If there is any geo-political disturbance in any part of the world, crude prices will always run at a premium of $15 to whatever were the prices of crude in normal situation. This means that crude right now is at $65 and is $15 higher than its nominal prices. And when such a situation is settled down the prices gradually retrace back to their nominal prices. There is a possibility that the prices may come back to around $55. This situation is quite unlikely till the prices touch $70.65. To trade in this wave of higher prices is a risky game but some good money can be made out of it. Now if you wish to trade in crude then your stop loss will be a close below $62.25 for two continuous days. If the prices manage to close below $62.25 for two consecutive days then exit your positions but do not make the mistake to selling then. Then it will be better to stay away form it. In this rally the weakening rupee will also act in you favor as when it starts getting weaker and the crude prices rise it automatically gives more return in Indian crude prices due to the price valuation of the rupee.

Now as I am in Brazil the other commodity that comes to my notice is soybeans and sugar. Both the crops are huge in Brazil as far as the figures go. Remember when America had declared that this year they will encounter fewer crops of soybeans. But what I want you to know is that the figure that America declared were only the projections that they may sow less crop of soybeans, which does not mean that the actual sowing will be less. Logically at such prices that have been running in the markets which farmer will decide to sow fewer soybeans? The actual sowing figures will only be in after the month of June. That will be the deciding factor for the prices of soybeans. There is a huge crop of soybean hitting the international markets as far as Brazil and America is concerned and the demand is more or less the same as last year. So do not expect the prices of soybeans hitting sky high but expect them to be on the down run in the coming future. The prices are overvalued so having a long position will not give you any decent returns.

The same is the situation in sugar as in soybeans. So if investors are in any way deciding on taking long positions in sugar and soybeans you need to review you decision.

RUPEE IS IN YOUR FAVOR NOW...BUY DOLLARS IT IS AS GOOD AS GOLD!!!

We have the good news that at last we have a government with a single party majority and that it cannot be threatened by any other party of pulling out support for its survival. The UPA government has formed the government after getting a total seat tally of 322 and most of the parties that have given the support are unconditional support. This means that no one can hold the government at ransom of pulling out the support which 5 years back was a reality. The last government was holding on to its clutches to stand and walk forget running. It is the second time in history of Indian politics that after Nehru, Dr. Manmohan Singh has become the prime minister for the second time consecutively after serving full 5 years in service. If I am not mistaken he is also the most highly educated prime minister that we have since our independence. Also one thing is worth noting that this time we have many young ministers in the cabinet which no doubt the efforts of Rahul Gandhi.

Strong rumors have been circling in the market now that the petrol prices will be raised by Rs. 2. which I am had mentioned in my previous articles that the government will do it. The reductions were one of the tactics used by the government for the coming elections to be in the good books of the people. Now wonder what will happen with the inflation?? History has been created in lot of things when the new government was announced. The sensex shot up by 2000 points and in the whole day it traded only for 1 ½ minutes which itself is history and above that it has so happened that the markets hit upper circuit which will be mentioned in bold letters for years to come. The optimism of the investors was quite evident with this. Now the only regret all the investors are facing is that they missed the opportunity to invest at the lower levels as they were scared of doing so which is quite reasonable. The rain gods have been showering on us now. The first initial rains have hit most of places in India. But these rains are not the onset of monsoon as yet as they are just because of the extreme heat conditions. The clouds are heading in time and there does not seem to be any reason to worry as of now.

One thing that also has to be noted that the day the markets hit plus 2000 points the rupee went from 49.48 to 47.33 which is good news for the importers but not so encouraging for the exporters. Infact surprising thing was that even if the rupee strengthened to such an extent Infosys which is a major exporter of software was up by Rs.200. the next support levels that will be coming through will be at around 46.70 to 46.50 levels. Suddenly the demand for dollars from the FII’s came in with the optimism in the market that it is getting difficult to get dollars in the market. Infact the premium are running around Rs. 1.5- Rs. 2 on every dollar purchased in cash.

Lot of adjustments had to be made in the prices in most of the commodities too with this rise in the rupee. International crude prices were up by $2 but it was the rupee that did not allow it to go up on that day. Gold came down from the high of 14719 to 14180 in a day itself. That fall in price cannot be attributed to the fall in gold prices as on that day the prices of international gold were down by only $15 which does not equate to a fall of Rs. 500 in the prices of Indian gold. It was because of the rupee we witnessed such a huge fall in gold prices. It was the euphoria that made most of the commodity prices to come down as the prices had to adjust with the international prices with respect to the rupee. The fundamentals are not yet in place for the commodity prices to react as of now. As I said earlier that when the rains set in the new fundamentals will be in place then. But please do not be under the impression that the dollar has weakened. The dollar is still holding strong against all the other currencies. The movement in the rupee was plainly because of the demand from the FII’s to make fresh investments in India. It does not make a major impact on the dollar. Dollar itself is giving a new opportunity now to trade and make some money out of it. If you can trade dollars on mcx then I can suggest a trading strategy of buying dollars with a stop loss of 46.01 on closing basis and keeping targets of around 52.10 to 54 which I guess can fetch some good money with a minimum loss. If you cannot trade on mcx then you can buy dollars in cash too. It may take some time for the rupee to make this movement but it will be worth the wait. However disturbing it may be that the rupee will weaken but the fact cannot be ignored completely. It will be the dollar that will be making a turnaround at that time and hence this will affect the rupee too along with all the other world currencies.

MARKETS RANGE BOUND TRADE SWIFTLY..AND OFCOURSE SAFELY...

With elections over now when you will be reading this newspaper you will be experiencing the game of seats tally and parties hopping from one party to another and the mad scramble to form the government. What is really interesting to see that all the parties are so confident of forming the government as if each of the party is the last straw that can save the ship to wreck? The whole situation will be like a box of crabs wherein if anyone tries to go out of the box it will be pulled down by another. But what will be the last decision will obviously be seen when the new government is formed. Whoever forms this government pray that it stays and runs for another 5 years.

As far as the trading goes right now the hot market is the betting on the politicians of who will win or loose, who will become the prime minister or who will quit politics. Bets have been running high and who says that speculation is only limited to share and commodity markets only.

Today when I picked up the pen to write the article I faced the dilemma of which commodity to pick up as there is no major commodity that can be written on as the fundamentals that I put in will not be valid for a long time to come. A rain here in there and all the fundamentals hold no ground.

Right now the prices have been in a very narrow range as no new tops or bottoms are being breached. With prices in such narrow ranges positional calls can be decided only after the first rains hit the country. This week I have decided to put in the ranges of most of the commodities and will let you decide which way you want to trade. With the highs and lows that I will put in if either one of the figures are breached and if the prices close above or below that figure for minimum of two days then the trend for the next 3 months will be in sight.

Ncdex :
Chana (jun-09) high 2536 low 2258
Castor (jun-09) high 525 low 486.20
Chilli (jun-09) high 5015 low 4750
Guargum (jun-09) high 4015 low 3641
Guarseed (jun-09) high 1935 low 1745
Jeera (jun-09) high 12615 low 11480
Maize (jun-09) high 975 low 838
Pepper (jun-09) high 13925 low 12565
Soy oil (jun-09) high 530.50 low 478.90
Rapeseed (jun-09) high 554.50 low 508
Sugar (jun-09) high 2651 low 2272
Soybeans (jun-09) high 2882 low 2570
Turmeric (jun-09) high 5796 low 5113

Mcx:
Aluminium (may-09) high 82.95 low 64.50
Cardamom (jun-09) high 767 low 685
Copper (jun-09) high 250.80 low 210.15
Crude (jun-09) high 3025 low 2496
Gold (jun-09) high 16053 low 13906
Lead (jun-09) high 83 low 61.50
Nickel (jun-09) high 676 low 542.50
Silver (jul-09) high 24325 low 19951
Zinc (jun-09) high 83 low 62.65

For those following the equity markets
Nifty will range between the high of 3829 and low of 3168 which depends on the new government coming in power and their stability and the rains?

All the fundamentals will now change as the moves that had to come till now in the prices are over and the new trends will be set in another 3 months time. One thing that has to be observed is that all the agri-commodities have their open interest set in the month of June which itself is evident of the fact that all the commodities are waiting for their moves after the first round of the rains set in. Commodities apart, even the equity markets have their eyes on the rain which will also decide how the sensex and nifty will move. God forbid if the rains are not good then even the new government that will be formed will face tough times with the inflation and also risking itself to a fall.

I have been looking at the satellite images since last one week and the way the cloud formations are coming in the rains are coming in at the right time with a maximum delay on 1 week from the normal time. After the first rains are set in I will be visiting the places to have an idea of how the crops are and what is the flow of crop sowing in the villages. This itself will be a process of minimum 2 months but that will give the concrete idea of the crop situation. Because no trader will take the risk of taking a position and risking it against the rains to take a big hit with stop losses it will be advisable to currently shift to very short term trading instead of positional trading. Intraday will be very volatile so please be careful with your stop losses. There is no harm in getting scared as it will save you lot of money.

WINNING STRATEGY NOW- SHARPEN YOUR WEAPONS….

First to give you some news which no doubt is old but something that is important to know. The President of America Mr. Obama has declared that companies in America will no longer enjoy tax benefits if they outsource their jobs to Bangalore. This is a big reason to worry which the call centre owners say that they are not worried, but why would the American companies outsource their jobs in India anymore if they do not receive any tax benefits for it. The call centre at a time was the biggest employer of the youth population in the country. They have no doubt revolutionalised the job market, and infact they have given the opportunity to even the people who even being so qualified did not have a hope of getting a decent job and supporting their families. But this announcement will definitely create some panic in the job markets as well.

Coming back to the commodity markets now let me start with this, a loser is someone who puts down his weapons in a fight, but a fighter is the one who is ready to attack when the right time is in and wins the battle. Something similar is happening in the markets now. The markets have become very volatile for the time being and I have been seeing people really getting shaky with their current positions. Even though they are on the right side of the market they have been taking big hits with their stop losses being hit first and then the targets coming in sight. But I would say, that do not even think of putting down your weapons for now as there is a major battle to be won. Such a person is called a strategist. This is the time to take some rest, sharpen your weapons and be ready to battle out in the market. The right thing to do now is hold still wait for the right opportunity and then make your move. Have you ever seen a lion catch its prey? It waits for hours together and keeps a constant eye on its prey and when the right time comes in it strikes and has its food. The commodity markets are in the same situation now.
Let’s look at few commodities and let’s analyze the situation of what fundamentals they have and what moves they have made. First, the sacred obsession of the Indians- GOLD.
There is a rumor going on that China has been buying gold to increase its reserves. There had been certain newspapers carrying the news that the gold reserves of China have reached to 1054 tons from 600 tons. Now for you to know China has not been importing any gold and whatever reserves that they have been building up is from their own production. Believe me China is in no position to afford gold at these prices and China’s economy is in trouble but it never shows that it really is. Going by plain logic any person with a simple knowledge of basic economics can say that a country which is so dependant on exports cannot progress with the same speed if it does not have demand for its goods. Had the economy been good in China, they would not have faced loss of employment at all. Even a country like India that is an agricultural economy has faced job losses and economic growth slowing down, and then China cannot be an exception. China has become a hot favorite of the bull players who really want to ramp up the prices and blame it all on China demand; let that be gold, silver, copper, zinc, nickel, soybeans or even corn. Look back in articles of last 5 years you will realize that whenever any major moves have come in the prices of any commodity, the first reason that you will have is “China is buying”. The actual reasons may come in later on after days, saying that this was the real reason why the prices of that commodity shot up. Question is has any of the analyst really given a concrete evidence of how the economics of China are moving? The answer is a big “NO”. China has been the most secretive country and it will not reveal that they have problems because if it does then the whole world will panic, because China today is at no.1 position as far as the BRIC (Brazil, Russia, India, and China) nations are concerned. No country will like to portray that they are weak. Take the example of North Korea, which is facing such of economic turmoil and their people suffering but yet they display their military might and say they are strong.
The next commodity to look at is cardamom. Has anyone realized why cardamom prices have shot up so quickly for no reason? There is a reason behind it and I guess very few people are aware of it. First thing India does export cardamom but that is to the extent of only 5%- 8%. The crop in India is not damaged at all, but does anyone really know that cardamom is a major crop of Guatemala which is situated in South America close to the border of Mexico. Guatemala accounts for 60%-80% of world cardamom exports. There had been a major earthquake last week with the intensity of 6.1 on the Richter scale, which is quite big but none of the Indian TV news cannels reported it, except for the international news channels. This had created a panic in the market that India will now receive export demand for cardamom. But the real reason was much before the earthquake. The crop in Guatemala is damaged badly not because of earthquake but due to the weather conditions out there. Now which reason will you stick to take a long position in the market, the earthquake or the real crop damage?? Information is the key to trade the commodity. If you have the right information and have made your confirmations then stick with that commodity and you will end up making money. Following a rumor will always make you end up with losses because you will know when the player will enter the market but you will never know when they will exit and you will never be informed when they do. Trading on panic is profitable for a very short span of time, and if you are lucky enough you will make some profits.
The rains will be the deciding factor now for the commodity prices to have a perfect trend now. The rains should be in by the end of may and that should decide what is going to be the status of the sowing. I would urge the investors that if you are looking at taking some major positions in the market then the right strategy will be to hold on to your weapons wait for the trends to set in take the right positions. I know I have been saying this a lot to hold on and then take a position, but I do not want you to loose money if there is no trend in the market. I believe that the market is very volatile now and trading now will be based on your strong luck and not on strong fundamentals.

SWINE FLU ON COMMODITIES

Vote for your future…vote for safe trading …vote for profitable trading…

Voting is taking place all over the country now, and I have voted for the right party that I think will make my future secure in this country and even my hard earned money. So I wish that even you make a wise decision and vote for the right party and make your future secure and even the future of your dear family. Here we have the elections running in our country and the cricket IPL going on in South Africa. What is interesting to know that we Indians out here are watching the IPL on the TV and the NRI’s out there are watching the elections updates on their TV? So even the Indians sitting out of our country are concerned of which government is going to come into power, because even they are worried of how their hard earned money is treated in India.

That no doubt is a cause of concern, but what is new concern now is “SWINE FLU”. This year the first swine flu outbreak was reported in Mexico with 159 already confirmed dead. And it is being spreading very rapidly. This is actually the 4th outbreak of swine flu in the world. The first outbreak was in 1918-19 which affected 1/3 rd of the world population which was around 500 million people and caused around 50 million deaths. The second outbreak was in 1976 in America which was controlled not immediately but with a delay of 9 months by vaccination where almost 40 million Americans or 24% of the population was vaccinated. The third outbreak was in 1988 again in America but that was not a major outbreak as such. And now in 2009 we again have this coming in and it starts from Mexico and the earliest known case was of a 5 year old child.

This pandemic has created a sort of panic in the world markets. As soon as the news hit the TV screens the commodities were the first to react. Soybeans on CBOT collapsed during the electronic trading session collapsed from the high of 1057.50 to the low of 975.25 within 3 days. CBOT corn collapsed from the high of 395 to make a low of 375 in 2 days itself. CBOT Wheat in 1 day itself made a high of 550.4 and a low of 519.4. Because all these commodities some or the other way are connected to the pig farming industry. But what about crude? Let me mention that too it came down from the high of $51.75 to a low of $48. Now why would crude react in such a manner is a good question. Crude oil is indeed connected to all this panic. When a major pandemic breaks in any part of the world there is always a general fear among travelers to go to any part of any country. When such a thing happens the first industry to be affected is the airline industry which is a major consumer of crude oil. At these times all the commodities get a bit wild and become a bit directionless. The tops and bottoms that are formed are completely illusionary and there is a high possibility that you may be tempted to trade these moves but let me tell you they are actually traps which may cause you major losses with your stop losses being hit bad. That’s why I will advise you to stay away from the market for sometime and wait for a week’s time for the swine flu paranoid to end and then start trading.

This week it would be a bit difficult to give any levels for trading any commodities. What ever levels I give the stop losses levels will be very high and the risk involved would also be big. If you have the patience of holding on for sometime and wait for clear trends to come in it will make you comfortable, as you will not loose money by not trading.

GOLD

A lot is being said about gold this month. If you pick up any newspaper for last one week you will see all of them saying the same thing in a different manner on different day. Let’s run through the headlines.
“Gold prices rise as India starts importing gold again”
“Gold prices shoot up Rs. 400 because of buyer’s interest coming in again”
“Gold prices rise because of demand of festive season of Akshay Trithiya”
“Gold rallies for another day again”

With so many headlines making news everyday, I could not come up with a decent headline, so I said to myself why not allow my readers decide what headline to have for gold? I am pretty sure that when you read those articles there would not be any difference in the matter of the article. It would be like some daily update saying that the prices of gold have shot up but no one to give a decent reason why?

For last two months India did not import any gold as there was no demand for it. Well I would say that India did not import any gold because India being the largest importer of gold was actually selling scrap gold in the market. By scrap gold I mean the gold that is fabricated into jewellery. Indian’s were simply not comfortable with the prices and they are of the belief that gold prices are too expensive to be bought at these prices. I would like to ask you this question, are you ready to buy gold at these prices? I guess most of the answers will be a big “NO” except if you have some marriage in your family you will be forced to buy it. Even if you think of buying gold on the day of Akshay Trithiya, how much will you buy at these prices? I bet if you would be going out to jewellery store and pick up gold it won’t be more then 10 grams. Believe it or not we Indians are the biggest bargainer in the world. I know that is an exaggeration but even if it is, isn’t it true. Wouldn’t you like to buy anything at a discount? Don’t we go to any store and start bargaining to even save a rupee and squeeze the maximum for the hard earned money that we make? And why not if we make the money with so much of efforts then why not bargain? Go to any store that has discount more than 50% and it will be the most crowded place, because it is always the mentality of the buyer that he is always paying a higher price for whatever he is buying.

Coming back to gold now, there has been lot of confusion in the markets right now of where are the prices heading. How much ever anyone tries, you cannot catch the prices of gold at its rock bottom or sell it at the peak. For last two weeks gold has been in the range of $865- $905. As I had mentioned in my previous article of gold that the level of $885 is a very crucial level for gold prices and this was broken on 6th April to make a low of $865. Now if we go with the physcology of the market once a major support is broken in the market the market gets a bit panicky and the market looks to settle down with the shock of it. Once the bulls and the bears of the market settle down then the prices start a new move which give the market a new environment to decide the prices. Right now the prices are within a range of $905 - $865 and it will take time for it to give a break out. I guess a little patience at this point of time will be highly profitable.

Right now a lot is being speculated that India, China and Russia are planning to increase their gold reserves. But that is not something that can be believed. With the current economic situation it is not possible for any of this country to buy gold. It is basically a panic that is being tried to be created in the market to support the prices of gold as there is no other reason that can now get the prices of gold shooting up, except if any war breaks out in any part of the world. There are people who compare the crude oil and gold ratio to make their analysis. But tell me something would anyone really trade both crude and gold based on the ratio. Crude itself is still struggling to find a bottom so where would you get a ratio out of it. Russia financially is not in the position to buy gold as they are already facing it difficult to run their economy with crude prices at such low levels. Crude oil and natural gas is the major foreign exchange earner for Russia. Do you think china is in such a position that its economy is not affected by any of this economic turmoil? Of course it is. China is dependant on the US economy to run its economy how much ever they deny this fact. If that was not the case then china would not have faced any economic trouble at all. But India is unique in itself. India is still an agricultural economy. So it should not be affected by the economic crises that badly the was china or Russia was. It was only the panic that had made the stock markets in India to crash and not the fundamentals. This was the same statement that was made my Mr. Anand Mahindra in a TV interview about the Indian economic situation. India’s economy is very much dependant on monsoon, and believe it or not even the international markets follow Indian markets based on the monsoon situation in our country. India does not need to increase its gold reserves because if you look at the cash reserves of the RBI you will be completely surprised.

The gold prices are going to take time to find a proper trend as of now. I would say it is still not the right time to buy gold, as it has to find a proper bottom to settle down. Hold on to your money for now and wait for it to give a sure signal. Till the time the chart does not show a decent reversal pattern it is better to stay away from buying gold. Once the pattern is confirmed then even if you buy gold at a bit of higher prices you will be rest assured that they will be stable and rise further. During depression gold is the last commodity to fall and that is what is happening. It will take time to stabilize but it will for sure.