Commodity Traders, Keep an Eye on the Euro

Commodity market watchers have been witnessing history in the making the past several months, as several futures markets, including crude oil, gold, soybeans, wheat and copper, have all notched fresh all-time highs.

There are no early technical clues to suggest the major bull runs in commodity markets will fizzle anytime soon. However, veteran commodity market watchers know the cyclical nature of most commodity markets.

Indeed, history shows that commodity market prices experience major booms and major busts. The booms occur suddenly, from a historical perspective, as commodity traders have seen in recent months. The historical booms in individual commodity markets can be seen by steep price uptrends on longer-term charts. And the busts that occur just as quickly produce big "V-top" reversal patterns on the longer-term charts.

The commodity futures trading landscape has recently been littered with the carcasses of would-be top-pickers in those commodity markets that have been trending strongly higher. It is so tempting, even for veteran commodity futures traders, to sell short those big price rallies into uncharted territory, as the veterans know the boom will not last and that prices will at some point take at least a "corrective" tumble. However, the smarter money in trading knows that "the trend is your friend," and the price trends in most commodity markets are still pointed solidly up.

Keep in mind, however, that the bull market runs in most commodity futures markets are mature, at present, and that means that price volatility is high -- both on the upside and on the downside. A trader can be right in his determination of price trend in a commodity futures market. However, if the trader's timing of entry into a trade is not spot-on, then the higher price volatility in the markets is likely to whipsaw the trader.

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Jim Wyckoff is a senior market analyst for TradingEducation.com a free educational Web site. In addition, Wyckoff writes a blog offering current market commentaries every morning on TraderBlogs.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Wyckoff appreciates your feedback; click here to send him an email.