Volatility is having a huge impact on many markets. No one has ever seen anything like this. I don’t want to get into details of why this extreme volatility exists except to point out that it does exist, it has been here for a while and probably won’t go away anytime in the near future.

This volatility and chop has forced me to alter my trading strategy to fit with the times. I find myself recommending positions for a shorter time frame than I once did, and trading smaller size unless I find a great risk-reward situation during the day-trading session. In that case, I recommend loading up and taking off a majority of the position by the close. Only push a core unit overnight if justified.

Crude Oil

Crude oil and gasoline prices are on the center stage across the world. Here in Chicago, a gallon of gas is about $4, and that’s for the cheap stuff. Now I have heard arguments why crude oil needs to be at $250, and why it needs to be at $10. Both arguments have fundamentally valid points. This is one of the reasons why I recommend you trade off the technicals and price action, rather than just off the fundamentals. This industry is so complex that it is almost impossible to truly know all the fundamentals and make an informed decision. The bottom line is that the crude oil market is going up and price trumps all.

I am asked day in and day out why crude oil continues to behave the way it does, and I have a theory. First, it has to do with Goldman Sachs. Lately they have been calling for $200 crude oil on a super spike. And when Goldman talks everybody listens. A statement like this helps to keep prices inflated, which leads me to believe that Goldman has a lot of crude to sell and they are trying to create demand.

The second part of the equation has to do with demand. We have increased demand worldwide with an emphasis in China and India even though those numbers are starting to plateau in the U.S. Anyone in the U.S. who would have changed their spending habits because of higher energy prices has done so years ago. The rest of us keep going about with our day cutting back elsewhere. Why should the price come down when demand hasn’t? The market is smart and knows this.

Finally, the long run macro view: there is a limited supply of crude oil worldwide, and demand will continue to increase until a new energy source is found. Less supply and more demand will continually push energy prices higher. Throw in any geopolitical concerns and I wouldn’t want to be short.

June Crude Oil Futures

I suggest that you keep buying dips until proven wrong but keep in mind that these dips could easily be $10-$20. I do believe we are about to live through a major correction. The spreads are coming in, a bearish sign. Spreads tend to be a leading indicator of where the market may be heading. It’s just a matter of when. If that time comes, the pullback could be fast and violent.

Grains

Right now there is a weather battle going on between corn and soybeans. The Midwest has been wet and cold the past two weeks, with the exception of a few perfect days. That has delayed farmers from getting their field work done with respect to corn. Every bad weather day that goes by will take acreage away from corn and move it into soybeans. Corn is a costly crop to grow and the profit margins are still high in soybeans.

The corn acreage is estimated at around five million acres less than last year. A higher percentage of the corn crop is going to ethanol. We need all those acres and a bumper crop to meet that demand. For the next few months all indicators, including the technicals, lead to higher prices. I suggest buying dips.

Wheat, on the other hand, is estimated to have its largest crop in five years, which should put downward pressure on the price. However, I have a feeling it will get dragged up with corn if my overall analysis above is right.

The soybean crop is still up in the air until we see how the weather plays out over the next month or two, but after looking at the carry out numbers from Friday’s USDA crop report, I see soybean prices significantly higher in the months to come. That might not pan out for 12 months or so, however.

Stock Indexes

I have become bullish on the stock market over the last month, but price action on Wednesday and Thursday, May 7 and 8, really threw some doubts in my mind. On Wednesday, S&P 500 futures posted a technical outside up day, which is very bullish. I was upset for not recommending a buying opportunity on that day. Then on Thursday, the market reversed and posted a technical outside down day, very bearish with the financials catching a bid.

June S&P 500 Futures

I’m starting to see money flowing out of bonds and money market funds into equities. I think this should be supportive and bullish for stocks going forward. Insider selling has significantly slowed recently while insider buying has significantly picked up in the same time. The chart and price action you see above confirms this view. The bottom line is that I do recommend buying dips in this market, but be sure to proceed with caution.

Michael Hinman is a Senior Market Strategist with Lind Plus. He can be reached at 866-471-2048 or via email at mhinman@lind-waldock.com.

Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.

You can hear market commentary from Lind-Waldock market strategists through our weekly Lind Plus Markets on the Move webinars, as well as online seminars on other topics of interest to traders. These interactive, live webinars are free to attend. Go to www.lind-waldock.com/events to sign up. Lind-Waldock also offers other educational resources to help your learn more about futures trading with free simulated. Visit www.lind-waldock.com.

Futures trading involves substantial risk of loss and may not be suitable for all investors. © 2008 MF Global Ltd. All Rights Reserved. Futures Brokers, Commodity Brokers and Online Futures Trading. 141 West Jackson Boulevard, Suite 1400-A, Chicago, IL 60604.