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New Booklet! "The Delicate Art of Spreading"

It has long been rumored on the floors of the major exchanges in the U.S. that the most successful traders have been spreaders. Read Lee Gaus' new booklet "The Delicate Art of Spreading" and get insight into this potentially powerful trading strategy. You will learn: What is spreading, Why spread, Intramarket vs. Intercommodity spreads. Sign up for your complimentary copy today.

In my thirty plus years in the commodity futures business I have never experienced the type of markets we have witnessed the past several years. We have lived through history with the unbelievable increase in production of ethanol facilities, the introduction of billions of dollars of hedge fund investments into commodity futures, and the financial meltdown and re-definition of Wall Street. In the wake of this volatility we are now left with the task of trying to determine the fair fundamentally based value of exchange traded commodities. It is my belief that absent one hundred forty seven dollar crude, thousand dollar gold, and eighteen dollar soybeans the commodity markets are now attempting to find a degree of equilibrium based upon their own independent fundamentals. Given the past several weeks that is a challenge.

When we examine the level of recent volatility and the size of the market swings from high to low we suggest if one is employing technical tools one may be well served in sticking with the shorter to mid-term technical models. We fear that mathematical based longer-term indicators maybe marginalized to a degree by the size of the corrections and the speed in which the market moved.

Soybeans: After reaching historical record highs Soybeans at one point fell over fifty per cent off that high level. Having recovered somewhat I think we can more safely examine the underlying technical and fundamentals factors impacting Soybeans. We believe short-term technical factors remain somewhat friendly, along with a Soybean crop thought to be a little disappointing. We believe that the longer-term outlook is somewhat negative. We find the Melamine scandal in China to be of concern. We are hearing from sources in China that twenty per cent of the eggs fail testing, and that a large number of chickens are being destroyed. We know that dairy and now poultry are being impacted, the question remains what next? Overall unless the world economy catches fire we believe we will witness a reduction in demand. Now here is the caveat if the world economy does make a dramatic come back Soybeans could roar.

RECOMMENDATION: We are going to treat the Soybean market as a fairly wide sideways market, suggesting one consider buying January Soybeans at around $9.25 to $9.35 and go short around the $10.05 to the $10.15 area. Consider using stop losses on a close below $9.13 and above $10.40.

U.S. Dollar: Having been in a steady decline since 2001 the US Dollar has regained some spunk in recent weeks. In our view when the world was on the threshold of economic disaster the U.S. Dollar still had the most appeal for those seeking a more stable vehicle. Having rallied over 1700 points from the bottom a top or an area of rest before going higher? We believe that at least for the time being the top is in, we further think it could retrace to as low as 7975, however a close over 8750 suggests another move higher.

Recommendation: Sell December U.S. Dollar at about 8545 to 8600, using a stop loss on a close above 8650.

Gold: Reacting to all-time highs in crude and what seemed to be an endless break in the U.S. Dollar Gold reached new heights exceeding a thousand dollar an ounce. As in other commodities there were those suggesting even higher highs, but alas as is the world of commodities what goes up will eventually come down. When crude began to break and dollar began to rally a little of the glitter came off of gold ownership. The question as with other commodities have we reached a point of equilibrium.

RECOMMENDATION: One may want to buy December Gold at around $755.00 for a short-term move, but we are very cautious and suggest a stop loss at $750.00. Longer term we remain bearish and will look to initiate short positions should Gold enjoy a significant rally somewhere over $800.00.

Over the years I have developed an affinity for trading spreads. I am especially biased towards spreads during times of extreme volatility. I do not mean to suggest that there is a lower degree of risk in spread trading, because spread trades can and have experienced a risk factor that was greater than the out right long or short. Even so it is my preference to look to spreads during abnormal volatile times.

Kansas City December Wheat/Chicago December Wheat: My short, medium and long term models all suggest that buying December Kansas City Wheat and selling Chicago December Wheat is worthy of consideration. I have held for a long period of time that Kansas City Wheat may be undervalued compared to the Chicago Wheat. If I am correct why don't I just buy the Kansas City Wheat and forget the short side Chicago? Because they may both go lower, if I am correct the Chicago will go lower faster than the Kansas City, therefore I suggest a spread.

RECOMMENDATION: Buy Kansas City Wheat/Sell December Chicago Wheat as a spread around the -30/-32 level and consider a stop loss below -20.

Coffee: I get a little antsy about being short any commodity after an extremely large break, and that feeling holds true for Coffee. But all my indicators suggest that if we can catch a decent rally Coffee might be worth a shot on the short side. On a timing base it appears that Coffee is at least three weeks from even having a smell of a chance at reversing the trend and any further break from present levels will push that time frame back.

RECOMMENDATION: Sell December Coffee around $122.00 and consider a stop loss on a close above $126.00.

Just remember that forewarned is forearmed and use caution and adequate risk parameters if you choose to trade these markets. Outside non-specific fundamental factors may still greatly influence our markets and the market volatility.

Lee Gaus has over thirty years of experience in the commodities industry. Lee began his career in the livestock feed business before becoming a grain merchandising/commodity trader with a leading international company.

In 1992, Lee established EFG Group along with his two partners who are long-time friends. Since then, Lee has traveled the U.S. conducting seminars and trading meetings for retail traders and commodity offices.

New Booklet! "The Delicate Art of Spreading"

It has long been rumored on the floors of the major exchanges in the U.S. that the most successful traders have been spreaders. Read Lee Gaus' new booklet "The Delicate Art of Spreading" and get insight into this potentially powerful trading strategy. You will learn: What is spreading, Why spread, Intramarket vs. Intercommodity spreads. Sign up for your complimentary copy today.