A view on commodities

[DSM]

Crude Inventory :

Inventory expected -1,800 Actual -2,676. Data is positive for crude.

17/06/2015 20:00:38 : DOE US Crude oil inventories Exp {-1800 K} Pre {-6812K} Actual {-2676 K}

 

[DSM]

NG Inventory :

NG Inventory expected +94B, Actual +89B,which is positive data.

18/06/2015 20:00:34 : EIA natural gas storage change Exp {+94 B }; Prior { +111 B }; Actual { +89 B }

 

[nitingosavi]

dsm sir,

does the price changes of base metals effect/affect metal stocks like tata steel hindalco etc...?

 

[DSM]

Hi Nitin,

It's an interesting question - which I am not qualified to answer - as I basically am a chart based trader. However, since you asked, am sharing my thoughts on the same (which may or may not be right). Tata Steel since the last few years has faced numerous problems such as the ones listed below, due to which its stock is basically trading at almost 52 week low.

Some major problems with Tata Steel :

* Huge foreign debt due to its acquisition of Corus Steel (which was the largest buyout of any foreign company by an Indian firm) This acquistion of Corus unfortunately was at the wrong time, when the commodity prices were at a peak. Moreover, Tata Steel ended paying top dollar due to competitive bidding for Corus Steel from some Brazilian company.

* There is low demand for steel products due to global economic slowdown resulting in lower realization.

* Fierce competition from Chinese producers, who have excess capacity and so they often dump their products at/below cost.

* Problems in sourcing raw material - especially iron ore in India due to environmental reasons as well as political interference and court judgments.

My 2C.

dsm sir,

does the price changes of base metals effect/affect metal stocks like tata steel hindalco etc...?

 

[PreSap]

Human beings are brilliantly creative at finding ways to pass time in unconstructive ways. At these times, a true strategist shines by finding the means to make progress, to strengthen his position and prepare for the inevitable conflict. And conflict, we cannot forget, is inevitable - Garry Kasparov

I love playing chess. It is a game where you try to outmaneuver your opponent while he/she is trying to do the same. How different is this from the markets? And then like traders, there are players with different styles. Some are disciplined. They want to test your strengths and skills, and adjusting their game from being defensive to attacking as they find necessary. These guys are not playing for action, but to win eventually. (Even if they have lost, they will analyze what they did wrong, and benefit from the experience, and come out as a better player) Then there are players with swashbuckling styles, who have learnt trick or two. They want to charge out with a fulflegded attack and want to overpower you right from the start, without understanding how weak or strong you are. These players are like a boxer who has a reputation for intimidating opponents into submission in the first few minutes. What happens if his opponent is smarter, and will wait for a few minutes till our attacking Sancho Panza is tired and out of energy? Or if the opponent is capable of withstanding the blows, but our hero though dishing out, does not have the capability of taking in a sucker punch?

The analogy of such boxer is akin to some traders come into the market with their untested ideas or strategies, but with a goal of conquering the market and dreams of making big bucks. They have an attacking game plan, and may win a few.... till the market delivers a sucker punch and throws the trader out of the game. This may happen sooner or later, unexpectedly or not, but surely and certainly.

When I came across Garry Kasparov's quote, it much reminded me about trading. For a good trader, while fully in the game, and waiting for the right opportunity, it is just as important to disassociate himself from the market and not infer meaning from every tiny move, but rather think about the market objectively, and while even being in the moment, have the ability to look it from afar or higher timeframe or perspective. Just like a good chess player does not attack on every move (Ask Magnus Carlsen), a trader has to be patient and watch the market . It is not necessary for the trader to be in the market all the time. It is said that markets are rangebound 70% of the time - may be a bit more or bit less. But trying to engage oneself and enter at every trade and every signal without evaluating it in the context it is happening, can frustrate and wear out a trader. For e.g it happens many times, that the market will be in trading in a range of 25-30 point for hours on end. How many times will it happen that there is a breakout of this range (upside or downside) by 5-10 points.? Any attempt to enter this break will result in many failures till there is a genuine signal which the trader may then ignore considering the past breakout failures, or even if the breakout is taken the net result will mean only wiping off the losses or making a marginal profit?

In this context, I find the quote from Garry Kasparov to be apt - many times we need to do nothing but just watch patiently for the right opportunity to enter a trade. Watching the charts dispassionately, without having any views and waiting for the range to break decisively is the key to being a good trader. All that we need to do is be prepared for the one side to win the conflict between the bulls and the bears. This will provide us an opportunity with a decisive break from the range. It is inevitable, as markets cannot trade in a range forever and for a vigilant, patient and disciplined trader this opportunity will be there for the taking.

Quoted from the M6 thread, this seems applicable to me. Despite DSM mentioning that crude seems to be sideways, I have been whipsawed quite a bit in crude for the last few days looking for the "break from range".

 

[DSM]

Thanks PreSap.... Even I had forgotten that I had written this, let alone posting it... Re. your crude trade, suggest you look at the daily chart of crude. Since about two months, crude is in trading in a range, and within that range, there is volatility, where dips/support is bought into and resistance is being sold.... Since this range exist about two months, it can be quite frustrating to trade crude positionally - whereas on the 4H chart, one can easily identify support and resistance bands....

Posting screenshot of my trading setup. Top two charts are intraday 5M and 15M with 20EMA, and bottom chart on left is 240M Chart with 5EMA (20EMA on 60M Chart - but use 240M chart as it is easy on the eye) the chart on the bottom left is daily with 20EMA. Suggest always watch the charts in the higher frame to gauge the strength or weakness of the trend while trading intraday - and as the market is range bound, it is imperative, that small profits are pocketed - as there if not taken, the profit may vanish and turn into a loss due to volatility. My 2C.

Quoted from the M6 thread, this seems applicable to me. Despite DSM mentioning that crude seems to be sideways, I have been whipsawed quite a bit in crude for the last few days looking for the "break from range".

 

[DSM]

Crude Inventory :

Inventory expected -2,000, Actual -4,934. Data is positive for crude.

24/06/2015 20:01:27 : DOE US Crude oil inventories Exp {-2000 K} Pre {-2676K} Actual { -4934K}

 

[narangji]

Hi DSM

I remember once you showed how you take adds, can you post a chart where you take adds, I am learning adds so I would like to see few examples.




Many thanx in advance

 

[DSM]

Hi Narangji,

Don't think it was me who posted.... Bit if I were to say, adds could be done when there is a 1. small range formation 2. This range is formed over a long period of time. This is an ideal setup, as market when it breaks the range, it will do so with momentum. My 2C.

Hi DSM

I remember once you showed how you take adds, can you post a chart where you take adds, I am learning adds so I would like to see few examples.

Many thanx in advance

 

[DSM]

I usually look at common pairs to gauge the strength or lack thereof. E.g Base metals such as Zinc, Copper, Nickle and Lead should ideally move in the same direction. So one can identify false break in one if it is out of synch with others. Here, I think Copper is the leader as in my view. However, I have a question about the relationship between Gold and Silver. Since only these two make a pair - which one would be a lead indicator? Does Silver mimic Gold? Which would be in case Gold is up, Silver should also move in the same direction..... they usually do move in the same direction, but am only wondering which one can be considered a leader and which one the follower. Any traders have view on this? Thanks.