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June 3, 2005

There is a lot of ground to cover here so I will be brief in most cases....but first a note about the last 5 months...

As you all know, I revived my brokerage in January and started publishing recommendations via the internet. In general, what I have been trying to do is find ideas that I believe have dynamic potential over the next 3 to 6 months, get people into those positions, then do everything I can to just sit on them and let them develop....Which is pretty much what I have done, but I must say, probably too well, and to a fault....Though it certainly will not always be the case, with the exception of the NASDAQ trade, every initial   recommendation made here, in every market selected, has almost immediately started working (noted on all the charts that follow)...and working very the extent that all of them (five markets besides the NASDAQ) had very nice profits within a month or two...However, in three of them (Bonds, Cotton, and Copper), I neglected to take any of those profits, then watched all of them turn around and take those profits away (to a degree, I got them back again in Bonds)....I point this out for two reasons...One, I believe the best time for you to enter a market I recommend is as soon after I make the initial recommendation as possible, and two, at the urging of more than a few of you, I have decided to become more of a "profit taker". As a broker, one must avoid the appearance of trading just to trade (to generate commissions) and with my natural inclination to see the longer term picture, I am at times guilty of being too much of a "purist", and when I am asked, "Should we take the money?", more often than not my advice is, "Let's just sit tight. The market is still moving in the right direction." For whatever it is worth, I will try to change that...

Out of Long Treasury Bonds

On May 25th, I recommended exiting all of the Long Treasury Bond positions we have held since January 5th. While I still expect to eventually see long term interest rates go even lower (and Treasury Bond prices higher), I believe prices have reached an area where some sort of set back/consolidation is highly likely. I came out of our positions at just over the 117 mark and have since sickenly watched Bonds move several points higher....Today's action, however, following a "bullish" unemployment report, has some appearance of a reversal and could be signaling the end of what has been an 11 point up move over the past 11 weeks. Although I am giving some thought to the short side, I have no immediate plans to re-enter the Bond market...I also have to say, in spite of what I have written here, I do not discount the possibility today's "reversal" is not what it looks like...and I could just as easily be back on the long side in the near future.

6-3-05sept05bonds.gif (10005 bytes)

6-3-05bondsweekly.gif (14473 bytes)


Buy the Dollar Index

On May 31st, I recommending taking profits on virtually all of our long Dollar Index positions held since March 14th. My decision to do so was influenced by the fact all of our call options had become "deep in the money" and any sort of retracement would mean watching significant dips in equity while waiting (or hoping) for the up move to resume...And sometimes, it is just necessary to step back from a position, with no money on the table, and determine whether you should be "in" or "out" of the trade (which I DIDN'T do in Cotton---see following recommendation).

I believe the Dollar still has a long way to go and recommend buying the Dollar Index using the options position shown below...I try to stay away from "why" in the currencies, but, at a minimum, I do suppose the recent European Union problems are certainly not a positive for the Eurocurrency, nor will there be any news over the next few months that suggest otherwise, and the Eurocurrency may continue to fall dramatically. If this is the case, the Dollar Index should pretty much do the opposite.

6-3-05sept05dollar.gif (16962 bytes)

6-3-05dollarmonthly.gif (14044 bytes)

July Cotton

How Stupid Can You Be?

In this business, it is inevitable that you will sometimes just look (and be) stupid. July Cotton went up some 11 cents from my intitial January 31st recommendation, then sold off 9 cents without my ever having taken profits of any significance off the the extent that very profitable positions then became losers....As a futures trader, I hate saying, "I should have", but I should have done in Cotton what I am now doing in the Dollar Index....That is, take the money off the table and re-establish new positions using the 2 and 1 strategy at higher price levels. If I had done this in cotton, I still would have been wrong about the recent sell off in Cotton, but the financial result would have been quite different....

As July options expire next week, it is now of little consequence, but my guess is the July contract (expiring July 7th) will go off the board with a lot of strength.

While I continue to believe Cotton has begun a major bull market and will trade substantially higher later this year, I will not be moving immediately into the December contract. Historically, during the last 20 years, even though brief rallies are possible, wherever December Cotton was in the month of June, during the next 2-4 months Cotton was at lower prices in 19 of those 20 years. When I Buy Cotton, I want to be in it for a sustained move and, while anything can happen in this business, the "odds" tell me to stand aside for now.

6-3-05july05cotton.gif (10733 bytes)

6-3-05dec05cotton.gif (9993 bytes)


Sell Copper

Picking a top is probably the toughest trade there is in the futures markets. Tops are usually volatile and at times thouroughly frightening as a market bangs into new highs accompanied by the news, "There's not any left!!". Such is the case now with Copper. Since my April 12th intitial sell recommendation, Copper has sold off almost 20 cents (I took virtually no profits), then turned and gone straight back up making new contract highs today....I have nothing to go on other than the fact Copper is at historical highs and is just about the only major commodity futures market that has not gone through a major sell off during the past few years....And it is accompanied by plenty of talk that "there ain't none left!"....My instincts (rightly or wrongly) tell me this market will soon do what it has had a history of doing the past 30 years....Just suddenly collapsing for 40-50 cents over a period of months...Copper is an important commodity but it is not Gold, nor is it Oil, and I don't see it staying here at these extremely high levels (see chart below) for long at all.

As is typical of potential tops in commodities, option prices are quite high, and this trade is too expensive for the 2 and 1 strategy. There is a time and place for everything and this is one in which I am simply going to recommend buying the 140 or 145 September Copper put and risking whatever you pay for the option....Furthermore, as copper does have a history of " V " market reversals, if it goes higher, for every 10 cents it does so, I would buy another put 5 to 10 cents out of the money. My premise is, from wherever it quits, it is going to fall much faster and much bigger than anything it can do on the upside from here.

I would not be at all surprised to see Copper drop 50 cents before September goes off the board....These days there are billions of dollars floating around the futures markets and nothing seems to ever happen in a small way any more (which is fine with me).

6-3-05coppermonthly.gif (15000 bytes)

6-3-05sept05copper.gif (14808 bytes)

Out of  Short Unleaded Gasoline

Beginning with my April 3rd newsletter, I said I looked for Unleaded to drop to the $1.30 to $1.35 area prior to expiration. July has been as low as $1.38 and I will have no further immediate recommendations in this market. With the very few people who were in this trade, we did take the profits....

6-3-05july05unleaded.gif (10684 bytes)


Buy November Soybeans & Buy December Corn 

Via an email, I recommended buying November Soybeans on May 25th and then December Corn on May 27th.There is a bit of dry weather taking place in the Midwest and both Corn and Soybeans have been responding bullishly to it. I have long considered bad weather and Soybeans to be just about the biggest, fastest thing that ever takes place in the futures markets. As examples of what can happen to Beans and Corn in a weather market, I've included charts of the 1983 and 1988 Corn and Soybean bull markets which both took place as a result of droughts in the USA....It goes without saying, what happened then does not have to happen now...

I DON'T KNOW what the weather will be or what will happen in either of these markets. All I know is, if they start looking like they are looking now, you get in, strap on your seat belt, define your risk....and see what happens. I may be wrong but, to me, what is most likely over the next two to three months is either, relatively Straight Up or Straight Down....not sideways....As options are quite pricey, I am primarily taking these positions using futures contracts with puts bought to define my risk....If Beans and Corn are going up, I have no idea how far they can go and will be handling the trade on a week by week, sometimes day to day basis....

In both Soybeans and Corn, each one cent move = $50.00....or each $1.00 move = $5000.00 per futures contract.

Here are several examples of past drought driven markets....

6-3-05nov83soybeans.gif (9951 bytes)

6-3-05nov88soybeans.gif (10894 bytes)

6-3-05dec83corn.gif (8554 bytes)

6-3-05dec88corn.gif (16376 bytes)

Here are the longer term charts....

6-3-05soybeansmonthly.gif (14182 bytes)

6-3-05cornmonthly.gif (11461 bytes)

And here are the contracts I am currently recommending....

6-3-05nov05soybeans.gif (12618 bytes)

6-3-05dec05corn.gif (13411 bytes)

If you are interested in any of these ideas, the sooner you contact me the better....

Thanks much,

Bill Rhyne



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