It looks as though the metal markets have ended their multi-week price correction and returned to the path of the bull market. This correction took the metals out of extremely overbought price territory and allowed the record levels of Open Interest in some of these markets to return to more manageable levels. Our suggestion is to get long and use tight protective sell stops. After a position is entered we suggest that the following week traders should start trailing the protective sell stops just below the previous week's low. If stopped out, be prepared to re-enter. Here are the markets we are looking at:

Gold - Last week this market broke a six week pattern of lower weekly highs and mostly lower weekly lows. Also, the 9-day Moving Average closed back above the 18-day Moving Average for the first time in over a month. This indicates that the momentum has shifted to the up side. According to the recent Commitment of Traders data, commercial interests are now holding their smallest net short position in eleven months. This indicates that they have aggressively covered their short positions during the market's recent slide. Large traders are now holding their smallest net long position since August. They obviously liquidated positions when the market declined. Open Interest dropped to a one year low. The market now has room again for new positions.

Silver - Last week this market broke a previous week's high for the first time in a month. The 9-day Moving Average closed back above the 18-day Moving Average for the first time since mid-May. This indicates that the momentum once again favors the up side. According to the recent Commitment of Traders data, commercial interests are back to holding their smallest net short position since September while large traders are holding their smallest net long position since then. Open Interest dropped to a fourteen month low.

Platinum - This market has made higher weekly lows and higher weekly highs for the last two weeks. The 9-day Moving Average closed back above the 18-day Moving Average for the first time in a month. It looks as though platinum is organizing a bullish price pattern on the chart. Open Interest dropped to a sixteen month low.

Copper - Last week this market broke a previous week's high for the first time in a month. The 9-day Moving Average closed back above the 18-day Moving Average for the first time in over a month. Momentum is bullish once again. According to the recent Commitment of Traders data, commercial interests are now holding the biggest net long position in two years! Large traders are now holding the biggest net short position in three years. Open Interest dropped to the lowest level since October of 2004.

Be VERY CAUTIOUS when trading the metals! Volatility has been extreme, margins have been increasing substantially, slippage on stops has been horrendous, and gap openings have been common. Only well-capitalized traders (financially and emotionally) should be involved in these markets right now.

Gold - Place an order to buy an August E-CBOT gold futures contract @ $618.50 or better good thru Friday, July 7th. Also, place an open protective sell stop at $603.50. The risk on this trade is approximately $1,500 per contract, plus commissions.

The metal trades are in highly correlated markets. Therefore, we suggest that traders who are doing one contract per trade pick just one of these markets to trade. Traders who are doing multiple contracts should consider spreading the trade out equally into all four of these markets instead of putting the entire position on in just one of them. This will allow for some diversification. Call the Trade Desk to discuss which trade may be best for your portfolio.

Be aware that the risk could be substantially greater due to gap openings or slippage on filled orders. Also, if the position is stopped out, be prepared for a possible order to re-enter the market. We may consider adding to the positions if the markets continue to climb and the protective sell stops are trailed.

Disclaimer: There is risk of loss in all commodity trading. The data contained are believed to be reliable, but have not been independently verified by Pearce Financial. Accordingly, such data cannot be guaranteed as to reliability, accuracy, or completeness, and as such are subject to change without notice. Pearce Financial will not be responsible for any indirect, compensatory, or consequential damages, including loss of profits which may result from reliance on this data. Pearce Financial and/or its Principals and employees may or may not follow strictly any or all of the trading recommendations contained herein. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

© 2006 Pearce Financial, LLC
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