Cotton long trade, 02/16/2010 to 03/10/2010
The chart shows some profit but since there are two points where I added to the position, the overall profit was around zero after transaction cost. Still, nice little trend that made me believe more in my system.
Now, let's look at the two most promising trades in my portfolio. I like to point out that both were entered solely due to technical signals and that no fundamental analysis of any kind was invloved (I'm neither an expert on natural gas nor sugar). Nevertheless, both sugar's and natural gas' declining trends, made me curious and I tried to find some sort of fundamental reasoning. Here we go:
Sugar short trade, entered 02/12/2010
Sugar hit a 29-year high at almost 30 cents earlier this year but is down more than 40% from that today. In fact today marks a new closing low at 17.63 cents (not in the chart yet). My system has been able to capture the bulk of the downward trend as seen in the graph. Due to 2 increases in the position along the way, the performance is only around 24% instead of the 33% from the original selling signal however. Nevertheless very nice money making trend... But what is the reason for sugar's decline? After a quick google search, there seems to be an increase in sugar supply as Brazil, India and Australia report higher than expected sugar crop yields this year. Especially the predicted 12.7% increase in the output of Brazil (the biggest sugar producer of the world) adds downward pressure on the price. On the other hand China and Thailand have experienced lower than expected harvests (see http://www.ft.com/cms/s/0/51f828de-31ba-11df-9ef5-00144feabdc0.html). If sugar continues to fall and stays below the support around 18 cents, speculators might liquidate their massive long positions which would give further momentum to the collapse of sugar (finanzen.net). Obviously there is always the possibility of the price hitting a floor backed by an increase in demand (Egypt, Mexico and Indonesia are supposed to buy their sugar soon). Stopp-loss is set at around 19.1 cents, so whatever the move will be, I'm prepared...
The other big winner so far is a short position in natural gas. Natural gas is down 30% from its high in December and once more my system has been able to capture a large proportion of this trend so far.
Natural gas short trade, entered 01/28/2010
From a fundamental point of view there a downward pressing forces on both demand and supply side. "The Economist" is featuring 2 articles on natural gas in the March 13th-19th edition which explain some of the reasons. First, the development of new technology has decreased the cost of drilling gas from shale. In fact it has turned some areas in Canda and the US from importers to exporters. Similiar projects are under way in Europe and China. Especially China is keen to diversify its gas supply by using shale gas from China. In a nutshell, drilling gas is cheap and the fields in the US are massive. The demand side offers a more mixed picture. Short term consumption has fallen due to the rescession, the end of the winter in the US and environmental restrictions in Europe. Still long term demand could pick up considering electricity from natural gas is much cleaner than from today's predominant source coal. Production could be easily switched in favor of gas (the US already has massive capacities ready, "The Economist"). Therefore the historically volatile gas price may remain volatile for some time...
There are some more interesting positions in my portfolio right now, such as the FTSE 100, Nifty 10, Brent Crude Oil and Nickel. All of their fortunes seem to depend on the rather vague future direction of stock markets though, so I decided to wait with their coverage for a bit longer. We shall see mai tirziu...
(yes, I'm trying to pick up Romanian)
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