GENERAL MARKET CONDITIONS

The volatility in commodities markets is very high. This is driving some of the day traders away from the market. I have found that some of the traders who used to trade in 1kg of gold in MCX have shifted to 100 grams of gold in MCX due to volatility. Intra day markets move in a certain trend, if one trades against the trend, the stop loss is bound to be hit. Many a times first the stop loss is hit and then the target comes. This is happening on intra day trades. The best way to beat this is (A) Determine the trend (B) Wait for the prices to near the expected buying or selling level (C) Use higher stop losses. When the average intra day volatility in MCX is over Rs.200 it is no use putting a stop loss of Rs.40 on a trade. (D) Do not wait for the target, exit even when prices near the same.

The Federal Reserve ramped up its liquidity support operations again in an effort to reduce money market strains and pre-empt the possibility of funding crises at the year-end or at other stress points. The Fed said it would offer three-month cash loans to banks and create a new options auction facility. It also said it would give investment banks and other primary dealers extended access to emergency cash and loans of Treasury securities until January 30. The options facility is similar to the strategy used by the Fed in 1999 to deal with the risk of a millennium Y2K liquidity crisis. The Fed will auction $50bn of options giving dealers the right but not the obligation to swap illiquid securities for Treasuries over periods of likely funding stress, such as the year-end. In my view the Fed thinks that printing more US dollars can solve the US pain of lower economic growth. This is very positive for gold and other safe havens in the long term. Only investors need to withstand short term volatility.

COPPER -- SEPTEMBER FUTURE -- INTRA DAY PIVOT: $354.0

Copper needs to fall below $349 for another round of selling to $332. Resistance is at $368 and $378.

MCXARUN
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