2007 has begun with a bang! The first week of trading was wild to say the least. We started the week with many markets moving higher only to reverse and seemingly fall out of the sky. It is clear that money is draining out of the Commodities complex at this time. This is not a major surprise as the CNBC Market Indicator has been flashing a sell for some time now.
By the CNBC Market Indicator I mean, the more they talk about something being great, the more likely it is time to get out of what ever they are touting. I do not say this to be funny or rude to the people at CNBC. It is just that they are quite late in identifying a market that is moving.
Take Crude oil as the example. CNBC was all over crude oil last year when it was trading in the $70 per barrel range (the top), but where were they when it originally broke out from $35 in 2003? Back then they did not flash the price of Crude oil on the screen every few seconds but rather only on the ticker tape on the bottom of the screen every 10 minutes.
Does all of this mean it is time to get out of commodities? Not at all. These times of increased volatility are some of the best times to be a trader. However, these are also the times when risk management becomes even more important than it already is. The use of options in concert with futures and or Forex contracts is a great way to more effectively manage risk. I recently wrote an article for Options Trader Magazine about this very topic. Click here to read the article. Article starts on page 16.
Derek Frey
Photo credit: Russ Allison Loar via Visualhunt / CC BY-NC-ND
Leave a Reply