Commodities faced widespread declines on Monday, July 7, 2008, in one of the largest selloffs we’ve seen since March. Not only did a 2.7 percent fall in crude oil make headlines, but other markets fell sharply, including gold and silver, grains, sugar, and even beef on ideas of a potential decline in demand. We had a number of bearish fundamental factors prompting the declines, including a strengthening dollar. The markets do have their ups and downs, and this doesn’t necessarily mean the bull market in commodities is ending. The way I would approach these types of days is to look at the overall trends. See which markets will offer you a good opportunity to buy at cheaper levels. Watch moving averages. Get a big-picture of the trend by comparing the 10-day, 20-day, and 50-day moving averages, and the daily chart. When you see the market pull in between these moving averages, that’s a value zone, and we’ve seen that in one market I think offers a good trading opportunity to buy on the recent break—natural gas.

Natural gas fell Monday amid speculation the first storm of the hurricane season, Bertha, will avoid gas-producing fields in the Gulf of Mexico. In addition, this summer hasn’t been unusually steamy, lessening demand for air conditioning from gas-powered plants. The August NYMEX contract fell 4.4 percent, the biggest one-day drop since March 17, to $12.977 per million British thermal units. However, hurricane season is just starting and I think there will be more threatening storms ahead and this market should rebound.

Natural gas has one of the smoothest charts I’ve seen, moving at a 45-degree angle over the past two years. Of course that could change, but this market looks like it offers a good opportunity to get long at this time. I recommend buying the December natural gas $14.50/$15.00 call spread. These options expire on November 24, 2008. It offers a maximum profit potential of $5,000 minus what you pay for it (about $1,000 currently), and your commissions. I would try to make this trade a 4-to-1 risk-reward ratio. So, you’d spend $1,000 on the trade with a profit target of $4,000. The minimum price fluctuation is 0.001 (0.1c) per mmBtu ($10.00 per contract).

Not only do I think there will be more tropical storms that should affect this market over the course of the summer and fall, but cheap energy is in demand globally, and places like China will likely find it an attractive source. Natural gas is cheap, clean, and easy to transport.

Feel free to call me for more specifics on this strategy, and to develop others to suit your particular risk tolerance and account size. Ask about our special half-off commissions offer for new clients too.

Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.

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