Our fund just closed positions on the Sugar early this morning, which we bought in early May 2011. Our profits on this investment were quite large to be honest, at 43% gain in price with 2:1 leverage, meaning over 86% return on risk with large sum of money invested.
Please consider the section of the recent article concerning Sugar below:
"Announcement of frost related supply cuts from Brazil – the world’s top producer – was compounded by news that China – the world’s second biggest consumer – may restock by 600,000 tonnes more than its usual quota of 1.9 Mt this year. A Bloomberg survey of the industry finds a median expectation that sugar futures could continue to gain."
Sugar news is extremely favourable for continued rise in price. We have news from China and Indonesia of strong demand; and we have news out of Brazil of weak supply. Unica, main governing body for Sugar supply, has capitulated and now revised the output of production towards lower levels. With all these favourable outcomes, why did I close Sugar positions?
Because the market has most likely priced in all of these events. As of last night, the price of Sugar failed to make a new high, which was very critical, under favourble news and demand/supply conditions. I regard this as a highly negative signal. Another negative sign linking to this is the outside day reversal candle (chart below). Technical candlestick patterns like outside reversal days near tops or bottoms hold much more relevance than at any other random time.
It was Marc Faber who first taught me that when a price of an asset fails to make a new low on unfavourable news, it could be starting to price in more favourable conditions. The same is true for an asset that fails to make a new high under very favourable conditions.
Therefore, on any major weakness or extreme sell off, I will consider re-entering the market again, as long term fundamentals for the Sugar market remain extremely bullish. However, in the medium term, I think the bulls have completely priced in recent supply shortages out of Brazil and we could experience quite a large correction.
Nice sugar trade, good logic.
ReplyDeleteKeep it going.
I still think you might have top ticked gold whether NotreDames (spelling?) is with it or not. Someone I know hinted they thought gold could decline as much as oil did the 2nd half of 2008. We will see..........
Thank you.
ReplyDeleteIn regards to Gold, I went short at $1900, but I am not sure if I called it right, I guess we have to wait and see. Otherwise we could ask Nostradamus.
I also do not think the stock market or Gold is repeating what happened in 2008 with credit freeze and Oil crash. I'm not extremely bearish on Gold at all. =]
Tiho:
ReplyDeleteI don't think the stock market is going to repeat what it did in 2008 either. It seems to have bottomed and could have a good run back up-Buffet just helped out greatly with his BAC buy.
It is possible for the stock market to have a good run up while gold is selling off. I have seen this activity in the past and could happen again. Gold has a parabolic chart now as did oil in 2008-somewhat a chilling pattern if the thinking around here is correct.
One day at a time, see how things develop.
Keep up the good work.
Nice short on Gold dude. Did you also buy Sugar at the bottom because Nostradamus told you to do it? Hehe, well done dude.
ReplyDeleteNice trade mate!
ReplyDeleteNice blog, Tiho.
ReplyDeleteI'm relatively new to the game, and so I really appreciate the fact that your posts are well-argued, documented and rely on technical analysis. So many blogs out there just sound like pure opinion pieces: no data, no analysis...bit tedious, really.
Plus, by arguing your case thoroughly in every post, you enable your readers to weigh your opinions and make up their minds for themselves.
Cool. Cheers for the blog.
I agree with your above analysis on the sugar outlook - not least because (i) the COT Index (20 weeks) on sugar shows that commercials and large speculators are decreasing their long exposures to sugar exactly whilst small speculators are increasingly bullish; (ii) clear bearish divergence on the daily MACD.
Time will tell whether we are right...
Got a question for you, though: where do you think cotton is headed in the coming 6 months ? I ask because I know that you follow commodities quite closely.
I think it may be starting to go back up again. Reasons: (i) two recent bullish divergences on the MACD, (ii) recent spike in ADX (which often occurs in a trough or at a peak, before a reversal of trends), (iii) COT index (20 weeks) shows that commercials have stopped buying (maybe they think prices are gonna go back up), that large speculators have dramatically increased their long exposure and, finally, small speculators are very bearish. Plus the resistance trend line was broken late August...
Any views ?
Another thing that amuses me is this: investment banks are currently issuing fundamental analysis reports saying cotton will shortly go below 100 cents, and yet the COT index shows that ibanks are currently increasing their long positions on cotton in a significant way - either one of two things: (i) the ibanks' left hands have no idea what the ibanks' right hands are doing (not reassuring), or (ii) it's a big con and ibanks are effectively telling small speculators to short cotton whilst they are massively increasing their long positions... (market manipulation, anybody ?)
With hindsight, we had a similar situation re sugar in April / May : ibanks were issuing reports on how sugar was going to go down exactly as they were increasing their long positions to benefit from the May price reversal.
Thanks a lot for your views on my cotton outlook analysis and on what the hell ibanks are up to.
Cheers,
Nick