Avalon Commodities Trading

Thursday, December 21, 2006

Copper Update - Plus Everything Else

Copper, which broke down through key support yesterday has closed below $2.90 per pound and is behaving as I hoped.

I also thought I'd update some of the calls and observations I've posted here over the last few weeks.

The dollar index, the set up which I was most excited on Tuesday about has stalled over the last few days. But the setup is still valid and yet to be disproved.

Silver sold off hard last Friday and continued down on Monday. Has since been a small consolidation zone, but looks like it could continue down.

Gold is still not showing any clear trend at the moment, but if the other metals continue down, it could follow suit. This is counter intuitive to the dollar downage... so we'll see.

Cotton which broke out of a rough basing pattern last Friday on very low IV, is continuing to look bullish. Not a parabolic trend, but very workmanlike.

Orange Juice - Rumours of OJ's demise have been greatly exaggerated. I was a tad enthusiastic in calling a top there... buuuuttt at least it hasn't bolted higher and humiliated me.

Cocoa is still looking bullish, but some profit taking eveident.

Crude. You knew I meant NEXT Christmas, right?

Coffee. Made enough to pay off my tab at the local Cafe'.

This will be my last post before Christmas I think, so HAVE A GOOD ONE!

Wednesday, December 20, 2006

Copper Cropper

Regular readers of this blog will notice that I have given a lot of attention to copper futures over the last 6 weeks or so. The reason is that I think it could be a good leading indicator for the health of the US/western economy - China story interplay. The precious metals have currency/inflation implications affecting price, and equities..... well in my opinion that's fantasy land affected more by spin than economic factors.

Copper is not greatly affected by these factors; BubbleVision doesn't talk about it much, if at all, so it is a pure supply and demand play... give or take the odd hedge fund trade.

For quite a few months I've held the view, and I'm not alone in this, that the copper story is all over for now, that we'll see lower prices going forward.

The thing is, since the low at around $2.97 per/lb printed during the retracement from the high of the year, copper futures have been doggedly supported at this, and points north.

On Dec 7, I posted up a chart of where I thought copper *might* go over the short term and this seems to be going according to script... at the moment anyway. March Copper futures today have broken below that $2.97ish support.

Now, it's not a convincing break by any stretch of the imagination and it could even finish the day back above support. I also fully expect buyers to show up at some stage over the next few days anyway, so this "scenario" will still need some time to play out and either confirm itself, or for buyers to come in and support it for a while longer.

In any case, this really adds to the hypothesis I'm working on and I think this, as a leading indicator, is looking just that bit more bearish for the overall western economy.

Just my opinion folks.

Tuesday, December 19, 2006

The Dollar - Sometimes Technicals Just Work

What keeps us technicians faithful to the craft, despite bad calls, satire, ridicule, derision (OK it's not that bad, but the fundies do like to dish it up to us) is that at times, all the planets line up just right and the confluence of factors is so stunning that you just have to trade it. This setup on the Dollar Index has it all.

We have:
* old support becoming resistance
* reaction off the downward sloping trendline
* confluence of fib levels
* evening star candle pattern
* all occurring at pretty well spot on the 83.80 level on the March contract

...and it's taken a whopping off that level today.

To say that I like this setup is an understatement. They don't come any better than this, but that's only half the story. The next bit is the art of the exit... not to mention the small matter of it continuing in the right direction.

The bad news is that it doesn't look good for the dollar... or is that good news? I'm never sure any more in this increasingly Orwellian, bad news is good news world we live in.

Melt Your Pennies For Profit

Apparently, the copper contained in US pennies and nickles is now worth more than the face value of the coin.

So it could be a profitable enterprise to cash in your life savings into pennies, melt it down and flog off the metal to scrap merchants in China.

Yeah good idea!! Except it could land you in the slammer.

Effective today, the U.S. Mint has implemented an interim rule that makes it illegal to melt nickels and pennies, or to export them in mass quantities.

With the soaring price of copper, a melted-down penny or nickel is now worth more than it would be in its regular state at face value.

Officials at the Mint say in recent months they have received numerous inquiries into whether or not it is illegal to melt coins.

"We are taking this action because the Nation needs its coinage for commerce," said U.S. Mint Director Edmund Moy in a statement.

The best ideas are always illegal :(

Meanwhile on the futures, Near month copper is hanging doggedly onto the ~$3 mark. Astonishingly, my pictoral hypothesis from the 7th Dec is playing out pretty close to the mark and now only need a break of support, to attain my copper guru stripes.

Monday, December 18, 2006

Copper To Come A Cropper

Or so says ABN Amro Holding NV metals analyst Nick Moore in London. Apparently the fundamentals of base metals are deteriorating as the economy looks to be slowing down and more supply comes on-line.

Read all about it in this Bloomberg Article

However, in the same article analysts are bullish on Gold and Soybeans:

SNIP - Next year's commodity winners may include soybeans, which are poised to jump to a 15-year high as U.S. farmers, the world's biggest producers of the oilseed, devote more land to corn.

Gold may extend its rally as the dollar weakens and slowing economic growth prompts investors to seek a haven for their cash. JPMorgan Chase & Co. increased its ``long-term'' price forecast for gold by 9.5 percent last week on expectations for ``robust'' demand.

``Gold's going to be the phenomenon of 2007,'' said Michael Metz, chief investment strategist at New York-based Oppenheimer & Co., which has about $10 billion in assets. ``If I had to choose one commodity, I'd stick with gold.''

Folks really are bullish on the gold story and the gold bugs really do put up a convincing case. It's almost so universal I'm tempted to invoke contrarian theory and fade it. Buuuuuut gold can run up awful fast if something happens... options don't look that cheap to me either so I'll be holding off from anything rash for now.

Get Fired Up For The Day With A Haka

TradeKing is suggesting that performing a Haka to warm up for trading might be a good idea. The Haka is a dance performed famously by the New Zealand All Blacks (the national rugby team) immediately before kick-off. Essentially, it is a war dance of the indigenous Maoris designed to scare the bejeezuz out of any adversary.

It works!

Check it out:

Perhaps all the gold bulls could do a haka and scare the crap out of the bears (or visa-versa) and get this thing moving. Just tell me which side is haka-ing so I can position myself on their side. lol

Gold Makes It to Wallstrip

If you've never watched Wallstrip, you should get over there right now and subscribe... entertaining, educational, funny... Howard, Lindsay et al are doing a great job. I've never mentioned it here because, well, it's mainly about stocks, and this is a commodities blog. So it was really cool to see todays episode all about the yellow metal:

It's reminded me that I've been remiss in mentioning gold, apart from the odd quip here and there. Why? I suppose from a trend trading standpoint I am a bit underwhelmed with the pattern at the moment. I don't see anything that would have me plonking on the futures with a trend trade and I don't like the IV setup at the moment for any short gamma option trades.

It doesn't mean I've ignored it, Oh no, it still has useful little swings for taking short term trades, so yes have been jousting away at it. I note Howard has got in at a good spot though and Bill Rempel also has a well thought out article on his blog today and faces off the bulls.

Long term... hey, I don't know I'm just a trader. Both sides have strong arguments and I follow along pretending to understand all the concepts, but as a private trader I'm primarily a hitch-hiker, I'm just draw my lines and try to catch a ride whichever way it's going. At the moment I have no idea which way, so it will be tilting at windmills for me for the moment.

Friday, December 15, 2006

When They Sell Silver...

...they really don't mess around. As it stands at this moment, silver is down >7%.

That is a big move in one day and represents a few dollars under $5,000 PER CONTRACT. Longs will nevertheless be happy with their gains since the October low, but it's still a lot of money to give back. (presuming not liquidating)

Gold has also put in a bearish day, being down a point and three quarters.

It could have a lot to do with the US dollar which has been staging a rather impressive recovery over the last few days. No sign of the dollar doom the bona-fide gold bugs have been getting excited about.

My view on the dollar; if I'm bearish, I'm bearish on all the western currencies, so nil effect in reality. Just the normal turns and round-abouts common in any instrument over time.

Cotton Breaks Out

On Tuesday I highlighted some low IV conditions in cotton futures.
Snip from Tuesday:
Well, yesterdays bar might have the bulls sitting up and paying attention, but ostensibly sideways.
What is of interest to option traders is the multi year lows in implied volatility. In the last few days, IV mean has finally decided to collapse below 20% to basically be on a par with statistical volatility, making them look like fair value for the first time in quite some time.
I wouldn't go calling them cheap or underpriced, but buying could finally be considered in my opinion
We are now looking at a breakout of a bit of a ragged basing pattern and including Tuesdays big up day, this looks pretty bullish.

Options at fair value and at multi year IV lows looks like pretty good conditions for a straight out plonk on calls in my opinion.

Wednesday, December 13, 2006

Kopper Kwicky

Copper is once again testing key support at the close of trading today. I am more convinced it will break support sometime soon rather than another bull leg up.


Death of the Dollar?

Former wall street broker, Max Keiser, files this report on the English version of Al Jazeera.

I post it here for interest only, and do not necessarily endorse his comments. However it is topical in light of the recent dollar dumpage.

Analysts Bearish on Base Metals

From TickerSense:

2007 Expected Commodities Price Changes

The table below highlights the consensus opinion on where commodities prices will go in 2007. The estimates are from numerous analysts polled by Bloomberg. The expected percent change for each commodity is calculated by the difference in the year-end 2007 consensus and the current price. Interestingly, the only three commodities that are expected to rise in 2007 are the three tracked mostly by the mainstream media -- oil, natural gas, and gold. All other commodities are expected to decline, with lead expected to fall the most.

Tuesday, December 12, 2006

Cotton - Low Volatility Heads Up

Cotton futures have been doing very little in the last 10 weeks apart from trade in a range from about 51 to 54.4 c/lb.

Well, yesterdays bar might have the bulls sitting up and paying attention, but ostensibly sideways.
What is of interest to option traders is the multi year lows in implied volatility. In the last few days, IV mean has finally decided to collapse below 20% to basically be on a par with statistical volatility, making them look like fair value for the first time in quite some time.
I wouldn't go calling them cheap or underpriced, but buying could finally be considered in my opinion

Orange Juice - The Bear Approacheth

Orange Juice futures have been in a solid uptrend since the middle of 2004 where prices stated at around 55c per pound, raising to a lofty $2.10ish just a couple of days ago.

Then... yesterdays 9.75c dumpage:

Now, as is obvious in this 5 year continuous chart, it is insignificant and not even enough to get near any trend lines one might draw in... not enough to be even immediately visible on this chart.

However, the fundamental news which precipitated this fall could be significant:

The U.S. Agriculture Department's monthly supply-demand report pegged Florida's
2006-07 citrus output at 140 million (90 pound) boxes, up from the 135 million
projected in its October report, which is a 17-year low.
The trade had been
expecting the data to be flat to 3.0 million boxes lower and were surprised by
the USDA's increased estimate.
"We were pricing in a smaller crop. Instead,
it got bigger so you saw people bail out like crazy," a dealer said. ===>>More<<===

Trends *usually have some underlying fundamental/sentiment reason for reversing and I reckon this could be it; so I'll be looking to see how this develops and perhaps for a low risk opportunity to short.

For the moment, just a heads up.

Monday, December 11, 2006

Cocoa Bull Going For A Romp

On December 5, I pointed out on this blog some overpriced volatility on Cocoa Futures, and suggested that selling some premium over this contract could be a good idea.

I also thought that the volatility skew and seasonal tendencies suggest risk on the upside. By implication, and if that risk is accepted as real, delta should be kept long. In other words, sell puts, bull credits or whatever.

That risk turns out to be materializing as Cocoa goes on a bit of a bull romp.

It broke out of resistance drawn on the chart immediately and put in a big bull candle on Friday.

It would have been nice to be long the futures as this contract can rise awefully fast, and it was interesting in that the IV predicted the move.