Everyone who has ever taken a shower has had an idea. It's the person who gets out of the shower, dries off, and does something about it that makes a difference.

- Michael Levin

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August 8, 2007

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What great volatility in the markets. I say “great” because this is what traders NEED to make good $. We need moves that are extended, we need breakouts and breakdowns, we need ACTION.

A trader friend of mine was devastated today as he took profits on a position that had gone against him hard and finally he was able to eek out a profit and as soon as he sold, within an hour, he would have made 100% MORE. To make matters worse, 2 hours later, it doubled AGAIN.

So instead of being happy that his position came back and he didn’t lose, he is at the bar right now drowning his sorrows from missing a huge gain. Can’t say I blame him, sometimes missing a gain that you were in is worse than having a loss. Think about that statement for a second; many traders are more upset missing a gain than taking a loss. If you ever traded large and closed out a position with a $50k gain to see it grow to $200,000 just hours after you got out, well, you know the angst I am talking about.

The difference is this: When we take a loss, we are out and we have taken control. When we see a gain and take it, we are now not in control and can watch what “would have happened” and can keep looking backwards and fume and fret and let it ruin our next trade… Ok, enough about the emotions that rack our psyche, onto the markets...

Equity Indexes

The stock indices have been ripping up and back the past few weeks and with the amount of turmoil in the market right now and this credit crunch hitting many solid companies, I’d have to say that I’m staying away from any opinions from either side right now. If I were pressed to make a trade, I’d probably look at the Put side of the S&P and Dow, more so than the Nasdaq here. In fact, I’d sell all into this rally and take a breather from the market til after labor day. There, I said it.

Metals

I find the metals boring lately as they fall apart quickly, then slowly rise and then fall again, so one could expect more of the same. Gold won’t do anything of substance til it breaks $725 (Dec) and Silver, the most overly bullish metal from a psychological perspective I have seen in a while, (when I talk to laymen especially) looks terrible. Dec contract could pop up a little here, but it needs a sideways move and a real break above $13.80 to get me going again. Funny, it could actually collapse too, to the high $11’s. Maybe some OOTM puts on Silver could be a boon if the longs throw in the towel.

Grains

Ok, call me an idiot here, but let Dec Corn pop back to $3.70 then retrace a bit and run through that area the next time and we could be forming a nice reverse head and shoulders here. Wheat…  WHEAT!  What the heck is going on with wheat?  What an incredible run wheat has had. Many missed it and some, like me are scratching our heads wondering who is paying up like this?  I can imagine the glee from growers as they are selling into this, booking great profits and planning more crops to take advantage of these historic levels. In a previous recc. I said to short wheat and buy Corn near the lows and although wheat has still run a lot, so has Corn from its lows, but it is a scary trade right now. As far as Beans go, I mentioned to fad any move that beans made last week and although I didn’t do it myself, it seems to be working out nicely and probably a move back over $9 for the Nov contract. But I go on record as not really knowing where it is going, so trade this carefully.

Energies

Well, for those of you who know me, my article a few weeks ago about the coming collapse of Oil prices was met with skepticism and even anger by some, thinking I was again, an idiot for publicly stating that “precious” crude could ever fall. So many letters and comments that Oil was/is going to $100 or even higher… Well, all I have to say is that many of the items I wrote about are coming to light right now and although Crude has NOT collapsed, I believe that the recent Weekly candlestick bar from last week was ominous and I would lighten up any long position on a rally and short into it, putting on bear spreads and outright buying puts. I expect prices to come down (Dec contract) 2 more levels here, to the bottom of the recent channel support around $66 and even $64 on an extreme move. For the other parts of the energy complex, gasoline (Sep) looks ok as it has retraced half the move from $1.60 in the beginning of the year to the $2.30 level in early July, so any dips from here may be bought for quick flips. But notice how quickly it fell apart, and then look at crude and expect that same kind of move. Dec Gasoline however hasn’t pulled back much as it also didn’t run up as much. I would assume that the $1.75 area would contain any real selloff. Natural gas seems almost cheap down here, as the Dec contract is picking up from the lows set Monday. Looks like a sideways move up and back between $8 and $8.70 so I would buy at the lows and sell into the highs for a while til we see a major break one way or the other. Longer term I like the Feb/08 contract ($8.59 now) to take out the $9.10 area and spike up to at least $9.50 where I would take profits.

Livestock

Lean Hogs have been a stellar performer since their low set at the end of the 2nd quarter and from there its been up, up and away. Dec at $70.60 here is a tough call so all I’ll say is that on any run-up I’d take profits but wouldn’t short. Any further run-up without a real strong volume push would make me want to get short. For live Cattle, speculators have had similar success as hog traders as the moves have run to new highs (Dec) and almost too easy was the trend line breakout from the March high to the mid June high (The breakout was apprx. At $96 when it popped) and the $5 point run has now had a more than 50% retrace, but looks weak to me so perhaps those waiting to buy the pullback may not get what they want and then sell into any shallow rally, taking this to the $96 area again… Stand aside is my call.

As for the other futures markets like OJ and Sugar and my old favorite; Cotton, I see nothing that would make me do anything of substance at this point, so tread lightly.

Michael Levin is a Consultant to Platinum Trading Solutions. He has been in the Financial markets since 1981, having been a broker and trader on the PHLX Equity Options floor in the 1980's and ran trading firms in New York in the 1990's to 2002. Mike briefly set a record in the options trading division of the US trading Championships years ago.

Trade the Platinum Commodity Spread Program COMPLIMENTARY for 60 days

PLUS, for only a short time, receive 30 days complimentary access to the Platinum Weekly email market performance update! This system works! Long only commodity funds that buy and hold huge quantities of futures contracts in many commodities have become a very powerful force in the market. These funds act in a very predictable way and the Platinum Commodity Spread Program has found an ingenious way to profit from the price movements of the spreads caused by these long-only funds. The Commodity Spread Program is now offered for only a short time by Platinum Trading Solutions. Go here to learn more.