Hi
I would like to share with everybody my 2 cents worth of whats happening in the markets right now with the sub prime problems and tyhe carry trade unwinding.
Before I discuss the levels let me explain on what I think moves the market.
All commodities move in order to find the equvilibrium between Demand and Suppy.
Now In the commodities avalable to speculators to trade on, we have demand and supply arizing from 2 sources.
1) Commercials
2) Speculators.
The commercials are the people who actually use the product e.g. a Gold mining company as well as a Jewellery company would be a commercial, while as every7dody else who buys gold becuse they want to speculate and profit from a rize in value is a speculator.
Generarrly the commercials have the most amount of un levearged money . So if "Toyota" is long on the Yen then It is Long on the Yen to offset the risks of the Yen becomming stronger and Thus adversely affecting their Core business, i.e. Cars. Hence Toyota will be Long on the exchange market only to the level it actually posses Yen.
Now the other breed Speculators , they are the market movers , they want to profit from any movement in the commodity market and want to make money by taking on the risks the commercials want to mitigate by taking a position opposite to the commercials.
Generrally they do not have Money anywhere close to the commercials , they tend to over leverage themselves , perhaps 30-50 times the Money they actuulay have . The Specualtors tend to protect their positions quite aggressively by using the High amout of credit avalable to them, hence we have Trending markets.
Now a balanced True price of the commodity would be when the commercials are balaced with each other, i.e. when there are equal # of Buyers and Sellsrs in the commercial world for that commodity.
Now Looking at the COT data from the USA I draw conclusions that if there is a meltdown in the market and the Price wants to Goto its true level then we would be heading for the folloing in the majors , however please bear in mind that the market often tends to over do stuff, so most likely in a melt down price insted of goging towards the balaced price of the commercials may tend to sway in the opposite direction and reach the other extreme.
Hence My conculsions:
USD/JPY : balanced Price : 115 reached on 5th Dec 2006 , Other Extreme : 112.
aud/usd: BP: 0.7350
gbp/usd: 1.800
usd/cad: 1.1315.
Now the question arises how does one trade this info, the way I would trade it is Go long on the major which has a positive yeild such as usd/cad, this is important becuase the price though is genrally quick at correcting itsself , it is prudent to accumilate roll overs incase the market decides to takes its own time and be choppy.
Now the above is based on the assumpition that the fundamentals have not changed in the ecomonies concerened and the only driver of the price was the speculators, however we know that this infact is not true . hence it would be a nice idea to keep these levels in mind however exit the position as soon as the COT data has a balace between the commercials , i.e. commercials long = commercilas short.
~huskins
I would like to share with everybody my 2 cents worth of whats happening in the markets right now with the sub prime problems and tyhe carry trade unwinding.
Before I discuss the levels let me explain on what I think moves the market.
All commodities move in order to find the equvilibrium between Demand and Suppy.
Now In the commodities avalable to speculators to trade on, we have demand and supply arizing from 2 sources.
1) Commercials
2) Speculators.
The commercials are the people who actually use the product e.g. a Gold mining company as well as a Jewellery company would be a commercial, while as every7dody else who buys gold becuse they want to speculate and profit from a rize in value is a speculator.
Generarrly the commercials have the most amount of un levearged money . So if "Toyota" is long on the Yen then It is Long on the Yen to offset the risks of the Yen becomming stronger and Thus adversely affecting their Core business, i.e. Cars. Hence Toyota will be Long on the exchange market only to the level it actually posses Yen.
Now the other breed Speculators , they are the market movers , they want to profit from any movement in the commodity market and want to make money by taking on the risks the commercials want to mitigate by taking a position opposite to the commercials.
Generrally they do not have Money anywhere close to the commercials , they tend to over leverage themselves , perhaps 30-50 times the Money they actuulay have . The Specualtors tend to protect their positions quite aggressively by using the High amout of credit avalable to them, hence we have Trending markets.
Now a balanced True price of the commodity would be when the commercials are balaced with each other, i.e. when there are equal # of Buyers and Sellsrs in the commercial world for that commodity.
Now Looking at the COT data from the USA I draw conclusions that if there is a meltdown in the market and the Price wants to Goto its true level then we would be heading for the folloing in the majors , however please bear in mind that the market often tends to over do stuff, so most likely in a melt down price insted of goging towards the balaced price of the commercials may tend to sway in the opposite direction and reach the other extreme.
Hence My conculsions:
USD/JPY : balanced Price : 115 reached on 5th Dec 2006 , Other Extreme : 112.
aud/usd: BP: 0.7350
gbp/usd: 1.800
usd/cad: 1.1315.
Now the question arises how does one trade this info, the way I would trade it is Go long on the major which has a positive yeild such as usd/cad, this is important becuase the price though is genrally quick at correcting itsself , it is prudent to accumilate roll overs incase the market decides to takes its own time and be choppy.
Now the above is based on the assumpition that the fundamentals have not changed in the ecomonies concerened and the only driver of the price was the speculators, however we know that this infact is not true . hence it would be a nice idea to keep these levels in mind however exit the position as soon as the COT data has a balace between the commercials , i.e. commercials long = commercilas short.
~huskins