Archive for December, 2006

By 2025 we will be in Stone Age

These are the famous words of Geologist Kenneth Deffeyes voiced in FEB 2006. Though the expert reiterated later saying that the words he said were a bit harsh, the quote anyway found its way to the top list of 2007 quotes. Books and cover stories highlight a mass psychology extreme. We call it a cover story indicator. Economist came up with a cover story on Dollar doldrums four times since 2004. Every time the cover page story hit the stands, dollar strengthened by 10-15%. Such inverse behavior of markets unlike what a reputed respected magazine suggests highlights how mass psychology works. If more than a million readers of Economist know that dollar is going down, most likely we will have a surprise, as a million people can not make a killing together speculating on the dollar. Same way, if the OIL expert writes a book about OIL crisis, most probably we are near an intermediate top. This is what happened, as OIL is much below the top and now other experts pen out stories about OIL.

Oil prices rest near $ 60 now. The analysts still sight continuing warm winter expectations and delayed deliveries. But how can delayed delivery push prices down? If OIL does not reach you in time, the demand should increase and take prices up. Maybe delayed delivery leads to inventory build up, which pushes prices down. This was for ‘OIL Bears’. The analysts have even conjured up new year forecasts for ‘OIL bulls’. They want to keep everybody happy. Despite warm winters, fog and delayed deliveries, OPEC is trying to reduce output to stabilize the market. Overall the outlook for the year ahead is mixed.

We at OR-PHE-US believe mixed analysis is easy analysis. If markets are moving sideways for the last one month, it’s easy to sight neutral reasons why OIL could go up and why OIL could go down and in conclusion how buying pressures match selling pressures to keep OIL where it is now, sideways. We sighted an extremity of OIL at $78. Now we see another consolidation zone, concluding in another leg up. The very fact that warm winter talk is ubiquitous is the very reason, it may fail to work. We still believe OIL remains in an OIL primary trend down to sideways, but short and intermediate term suggests a move up in Jan 07 before any real dip happens.

We gave MCX OIL buy near 2700 levels. MCX OIL moved up to 2900. Technically speaking the retracement up still looks wanting and shallow. Our target level still stands firm near 3000 levels. We will make an early review next year, if international OIL prices stay below $60. Any by the way, we partially agree with Deffeyes about a crisis, though we are not sure of the stone age. And even if we do hit stone age, we see it as a life time buy opportunity.

Have a prosperous New year.

WAVES.OIL is a perspective product published once a week. The report covers BRENT, WTM, XLE (Energy SPDR), top energy stocks, Natural Gas and related FUTURES. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools and sentiment indicators.




The Butterfly Effect

December Cold; January Gold.

If gold behaved even half as tricky, as winters are playing this December, precious markets will get a bit more interesting. It is seven weeks since we put our last update on gold with a potential target price turns on gold at $640 around November 24.

The metal dipped 3 per cent from our targets since then. This is marginal and does not really bother any gold bug. Plus, how does the bug care, whether it’s winter or summer, oil prices or weather have nothing to do with gold. True, isn’t it?

We at [bold]Or-phe-us[/bold] feel that nothing in the capital market works in isolation. It’s like the butterfly effect. A storm can be created by the flap of a butterfly wings thousands of miles away.

The same way an innocuous snow flake in Iceland can create huge volatility in MCX gold. Funny, isn’t it? If this is funny than what about, warm winters that push oil up, the crisis in oil, which brings prices crashing down from $78 to $55 and what about the great zinc mergers that bring zinc prices down by 25 per cent? If all this can happen, then why can’t snowflakes or butterfly wings cause a storm in MCX gold?

We will debate about this soon enough. At this stage we look down for the short term. The wave up from the October low has been a clear five wave structure, which ended near $640.

As a rule prices retrace 0.382 or 0.5 Fibonacci after a five wave impulse completes. At this stage we have barely finished 0.382 and the retracement still seems wanting.

Overall, we still believe that metals continue to move against a price overhang. Above $640 many things change for our gold count.

The anticipated resistances ahead for global gold and silver and MCX gold near are at $640, $13.2 and Rs 9,300 respectively came in visibly and clearly. At these prices, the above resistance levels will continue to hold.


These are the words of the famous Romanian sculptor, Brancusi. The essence of his words, boils down to the same thing. Whether life, technology, relationships, markets will become more complex tomorrow or simple? If you extrapolate, yes, everything should be a bit more complex. But if you think and reason, simplicity might be more sought after tomorrow.

We at OR-PHE-US agree that market success and forecasting will work more on simple logic than on complex models. For a contrarian its not tough to see a mania, if he wants to stand alone. And for a technician it’s not tough to see a moving average, if it says ‘Buy’ or ‘Sell’.

Moving average are simple in their use and very easy to interpret. Rather they are one of the simplest tools known to traders and technicians. The reason market participants believers drop these tools and use other forecasting tools and techniques is because markets can not be that simple. We believe in simple things of life. Our tools are simple. And we are convinced that it is the simple that is better. Simplicity is not only beautiful but also effective.

In the report, we have illustrated the SIF2 and SIF5 (Top Romanian Financial blue chips) 50 period (dily) moving averages. They are a sell for both SIF2 and SIF5. Every buyer should give prices a chance to move back up above the blue line, before he buys. This is the simple message. A solved complexity of noise you receive regarding your investment decisions.

Ouch! It’s the Smelter

ZINC - 25% down in 35 calendar days should definitely pinch if not hurt even the most entrenched bull. Have you thought what another 25% might do? And why did we fall in the first place? The notorious Hedge fund, the global reason, the local reason, the Zinifex-Umicore merger to become the largest ZINC producer in the world (Reuters-12 Dec), or the top analyst’s view, who went on quote saying, “The zinc market is very hot right now and it’s a good time to sell zinc smelters“. We at OR-PHE-US agree, the sector is headed for more heat ahead, especially if we hit our next target after 840 at 660.

[bold]What we said on ZINC and Hindustan Zinc? [/bold]

Nov 1 “Even if ZINC and related assets have some upside left we should see a multi month easing before a real move up re-exerts itself” Nov 14 “At this stage it seems HZNC has turned. Now if you were a traditional researcher you would be waiting for ZINC to turn before selling HZNC. This is extrapolation. For us HZNC can tell you more about ZINC reversals than vice versa. And below 900, its 840 for HZNC and below 840, its 660.”

We gave our readers a target of near 1000 on Nov 1. And near 1000 we anticipated a turn. And what we witnessed the last few trading sessions is just one leg. If we see things right, there are more heart burns ahead. 660 looked ridiculous then, but with a low of 770 today, at least we sound a bit rational now. And above all the two smelters that merged ZFX (Zinifex) and ACUMT (Umicore) are technically diverging. ACUMT has not made a new high while ZFX has straddled 26% higher above revious high. Divergence as a concept is not positive if it happens at a top. Let’s see, if this is one of the 33% mergers that ever succeeded in history of mergers since 1985.

Who will kill the Pope in Istanbul?

This was a recent Turkish thriller, which sold as many as 20,000 copies before the Pope arrived in Turkey. Sensationalism is at the heart of many industries. The news industry thrives on it. The television or the print. This sensationalism gives people what they want. If you give people something that they don’t want or something that they don’t want to listen or hear, you are doing something non sensational. We come in the latter category.

And like many of other forecasts, that we made on OIL, to sell at $ 78 and buy at $ 55 (WAVES.ENERGY), or for RON-EURO, where we are the lone voice saying the currency is headed to 3.2 in 2007 and maybe lower, or for COFFEE and SUGAR, which we say will not only outperform a host of assets but COFFEE also has a potential to double from current prices in a multi month time frames, we also say that TLV, the top blue chip of the ROMANIAN economy will fall from current levels to 0.85 and then 0.6. Unfortunately or fortunately that is how we see the perspective. Now we can give a host of fundamental reasons, which involve the size of the company, ability to sustain that growth, the bank’s cash needs, homogeneity of the loan portfolio, overall credit expansion in the emerging markets, sensitivity of the financial sector to the broad market, leading nature of the sector, sector PE multiple and a host of other reasons. And putting it all simply, we can say that the 6 year log channel stands broken for the stock and a normal Fibonacci retracement identifies 0.85 and 0.6 as the minimum retracement levels. We hope we are wrong, just like the author who speculated on the Pope’s murder.

Breaking the Reserve Bank of India

A trader broke the BANK OF ENGLAND on 16 SEP 1992 and earned $ 1 billion from the deal. How far is market from full currency convertibility and from creating traders who can break the Reserve Bank of India? Will we see such a scenario some day in emerging markets? High tech price quote systems to trade Indian Rupee (INR), as much as the top traded EURO, Dollar or YEN. We are no more in a less traded INR age,at $ 0.75 billion estimated trading day we have our fair share in the $ 1 trillion daily traded Forex market. The INR volume is sizeable to give seasoned currency traders some ideas. At Or-phe-us we have no clue if ever RBI will come down on its knees. But what we are sure about is that the time ahead will be volatile and the next decade belongs to volatility, as an emerging and profitable asset class. You never know how VIX (Volatility Index) Futures and Options, which we attempted to trade come out of their current struggle (just like Nifty Futures in Jun 00),a few bids and fewer ask.

Coming back to INR, the currency is headed down to 43 and lower, despite what the RBI does, despite macro economic conditions,despite the seasoned trader. This is our multi month forecast. At this stage INR should be spurting up in a C wave (illustrated in the report) back to plus 45 levels, before it continues the move down. Strange isn’t it, one side we have the professors, the economists, the politicians, the Bank of England, RBI and on the other side a pattern, Fibonacci sequence, and some statistical indicators. WAVES.FOREX presents the updates on INR, EURO, YEN and USD pairs after what many might call a volatile Nov 06.