The futures markets have been quite volatile over the past couple of years. The commodity bull market has been running strong for five years straight (as measured by the performance of the Continuous Commodity Index), currencies and global bond markets have made huge declines and stellar rallies in reaction to interest rate policies, terrorist threats and a growing global economy have created chaos in the energy and precious metals markets, and the list goes on...

With many markets at or near record highs, it can be a bit tricky trying to determine which ones offer the best probabilities and the best risk/reward set-ups. Certainly, a good technical trading approach that responds to the market's price behavior should help resolve this issue and uncover opportunities. But we have always had a special place in our hearts for those markets where we are anticipating a trend change at historic extremes. They seem to be the trades that offer a high probability combined with a high risk/reward. At the moment, it's slim pickin's!

But wait a minute...we have great news! While it may be hard to find a market that meets this criteria on it's own, we have identified extreme price levels in some market spreads. Quite simply, a "spread" consists of being long a market and short another market simultaneously. Instead of looking at the absolute price direction of the markets, you are trading on the relationship between the two markets. Think of it as believing that one of the markets in the spread is overvalued/undervalued compared to the other market and anticipating that the relationship between them will be corrected.

We have three major spreads that we are currently monitoring and/or trading at the moment:

All three of these have recently traded at all-time lows/highs when one market is spread against the other. The first spread we have already made trade recommendations on, the next two we are close to making trade recommendations on. These three are the ones we are currently the most excited about. We will continue to watch other market spreads for potential trading opportunities as well.

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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