Worldwide Trading- Precious Metals Currencies and Oil Steve

Worldwide Trading- Precious Metals, Currencies and Oil Steve Houck SOHO Capital Management, LLC 1

Introduction l My trading career – 2 years of trading learning the ropes – Dropped equities cold turkey – The last 7 K Why I chose these markets l Any Takers? l 2

The Markets l The Currencies – Euro, Yen, Pound, Franc, Aussie, Loon & Kiwi l The Metals – Precious l Gold & Silver – PGM Group l Platinum & Palladium – Industrial l Copper Uranium The 500 lb Gorilla – Crude Oil l l One trade for the entire month New Markets to follow 3

Resources l Broker Newsletters Books Software Yourself l Different Approach l l – Technical and Fundamental analysis l Only in Futures 4

Broker l Pit, Electronic and phone 24 hrs day – i. e. Currencies are primarily on Globex with Pit/Phone as a backup Fast Reporting of Fills l Ability to work with Customer l – NYMEX/COMEX Access Software 5

Open E Cry www. openecry. com l 800 -920 -5808 l $13 pit contracts for Metals and Crude l $6. 75 electronic Currencies l 6

Newsletters- Pay Subscriptions l Steve Seville's Speculative Investor – www. speculative-investor. com l Bill Murphy’s Le Metropole Café – www. lemetropolecafe. com l Rick Ackerman’s Rick’s Picks – www. rickackerman. com l Aden Sisters Aden Forecast – www. adenforecast. com l Richard Russell’s Dow Theory Letters – www. dowtheoryletters. com l James Dines’ The Dines Letter – www. dinesletter. com l David Morgan’s Silver Investor – www. silver-investor. com l Peter Carlin’s The Oil Trader – www. theoiltrader. com l GOLD Stock Newsletters– Clive Maund www. clivemaund. com 7

Newsletters- Free l John Mauldin’s Weekly Letter – www. 2000 wave. com l Chuck Butlers Daily Pfennig – www. everbank. com l Market Wise Black Box – www. marketwise. com l Jason Hommel’s Silver Stock Report – www. goldismoney. com l l l www. goldseek. com www. 321 gold. com www. kitco. com www. sharelynx. com I always read Cliff Droke, Captain Hook, Julian Phillips & Gary North 8

Books l Trading in the Zone – Mark Douglas l Traders Secrets and Winning Edge Series – Adrienne Toghraie l Financial Freedom through Electronic Daytrading – Van Tharp and Brian June l The Trading Game (? ? ) – Ryan Jones l Candle. Power – Greg Morris l The Oil Factor – Stephen Leeb l Gold Warriors: America’s Secret Recovery of Yamashita’s Gold – Sterling Seagrave & Peggy Seagrave 9

Software l e. Signal – Has the most worldwide Exchanges – Fast Reliable Data – Numerous 3 rd party software programs written for e. Signal data – Right click on Quote Window Autolist l Detail Window l – Continuous contract (#F) – The new Quo. Trek l For Smartphones, Palm and Blackberry 10

The Most Important Resource. Yourself! l Psychology is the key hands down – Have to cover the basic’s to give yourself confidence. What you learn tonight is only 20% of the real issue – Then take it to the next level by analyzing yourselfhow you trade and react to the market l Don’t chase systems, hot tips and seminars – You have what it takes inside! You are only avoiding the “real issue” – Over the past 15 years the successful traders are usually: l l l Simple Traders Trade Futures/Commodities Specialize on a certain Market 11

My Approach l Read, Read and then Read some more – Pay attention to what is going on in the world- not just my neighborhood! l l l Develop a macro picture of the World Economy for my base Use this base and apply it to the technicals- the charts Draw trend lines on all time frames and look for opportunities. Keep a daily Journal Constantly be aware of my mindset- In trading live in the here and now. Learn to have patience and conviction with my trades 12

Need to Know l First Notice Day – The FIRST day that a buyer of a futures contract can be called upon to take delivery. Pay attention to this otherwise you may be assigned the number of contracts you are long l Contract Rolling – Try to roll ahead to the next month one week before first notice day. Otherwise, you will pay an unnecessary premium. l Margin Requirements – Know the required margin and keep current l Silver was raised three times from $1000 to recently $3375 over a 10 week period. 13

The CME Currencies l CME vs. FOREX – Powerful Leverage…Put up $2400 and control $104, 800 in one Euro FX contract. Isn’t 43: 1 enough leverage? – FOREX says no commissions, but you pay the spread (3 -5 pips @ $10 pip= $40 average). CME is $6. 75 RT – FOREX price can be an issue depending on which broker you use- they don’t all interact with each other, therefore your price may be different from mine. With CME the price is posted for everyone around the world on GLOBEX. – Here today, Gone tomorrow! 14

Currency Basics l l l l All trade from 4 pm to the next day at 3 pm on Globex. (Only closed for 1 hr from 3 -4 pm) USD trades from 4 pm until the next day at 1 pm. That 3 hour period is usually pretty quiet in the currencies and sometimes the metals Open at 5 pm Sunday night Most trade with 1 tick= $12. 50, 100 “ticks” in a cent. Therefore a 1 cent move in the Euro= $1250. Currencies can really trend- use this to your advantage Always keep in mind major news events and Central Bank Meetings All currencies are watched against the Dollar index. (Use $DXC on e. Signal) 15

US Dollar Index Components 16

USD- Where it all starts l Trades on the NYBOT – Symbol is DX l l l If DX is up other currencies go down (Yen sometimes does not) Best traded against the Euro Since dollar found a bid in January, stock market has been making a top. If Dollar breaks it’s major down trend line, the SP’s should fall to 930 area, gold and bonds will fall, and the Euro will be crushed. First support is $1. 15 area with a slight possibility of $1. 04. 17

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Euro l l l l Symbol= 6 E M 4, 1 tick= $12. 50, $1250 cent Int Margin=$3240, Maint= $2400 Price Format= 120790 (USD per Euro) Euro has the best liquidity The Euro is a mirror image of DX, and will move almost twice as much Read Daily Pfennig everyday (or other Currency/FOREX News). Pay attention to ECB meetings Trend lines, Trend lines! 24

Basic Chart Setup For All Markets l l l l Simple 50 and 200 MA Donchian 20 and 200 so you always know where horizontal support/resistance is Work off of 15, 60, 120, 270, D, W M I am trying to catch a major trend and/or spot a trend reversal Draw trend lines on all timeframes and look for a break. I like three points, but will go with two many times. Once you start getting 4 and 5 hits you should start to see “edging” If you have an edging trend line your “good as gold”. Remember what I said about simple! To enter I like to see a break on a longer time frame If trend line is drawn correctly, you should see a “BAC” at the break 25

Euro Trend Line Break Trade l l l When the break happens it moves! Use a buy/sell stop limit to enter or enter early if you’re at horizontal support/resistance and another converging trend line. Don’t try to fight the trend. Either your already in the play and using the trend to keep you in, or be patient and wait for a true break. (The break candle should not come back up to the trend line!) When using buy/sell stops on Euro you need your stop limit set. 0025 away from your stop If it looks like it’s going to break- check the time. Many breaks occur around 11 pm, 1 am, 3 am, 6: 30 am or 8 am. Even if you miss the original candle break you can still get in because currencies trend! Stay in the trade as long as possible. Draw trend lines and look for a break to take you out 26

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Euro “Extreme” Trade DX and Euro on same chart l 15 or 60 or 270 min l Looking for Topping and Bottoming Tails + Volume Spike (Shooting Star and Hammer) l Looking for a push, then immediate pull back, through previous horizontal support/resistance (Donchian 200) l Don’t hesitate as it pulls back fast l This is the last push on a long trend- an exhaustion move l Generally, these occur in the afternoon/evening l 30

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Screen Shot of Extreme Trade Chart 34

Japanese Yen Symbol= 6 J M 4, 1 tick= $12. 50 l Int Margin=$2228, Maint= $1650 l Price Format= 9156 (USD per Yen) l The Yen (and other Asian Currencies like the Thai Baht, and Chinese Renminbi), should be the strongest in the next year l The Yen mainly trades the inverse of the DX, but NOT ALWAYS because of intervention and traders l My main Yen trade is probably gone- The JCB Intervention stopped April 1, 2004 l Once DX turns back down, this should be an excellent swing trade long l 35

British Pound Symbol= 6 B M 4, 1 tick= $6. 25 l Int Margin=$2295, Maint= $1700 l Price Format= 17928 (USD per Pound) l Has had a bid under it due to possible rate hikes. Should be the second strongest in the next year (Rate hike just announced today) l The Pound mainly trades the inverse of the DX l 36

Swiss Franc Symbol= 6 S M 4, 1 tick= $12. 50 l Int Margin=$2228, Maint= $1650 l Price Format=. 7830 (USD per Franc) l The “safety” currency, although gold has become it’s equal l The Franc trades the inverse of the DX, and tracks the Euro almost bar to bar l 37

Australian Dollar Symbol= 6 A M 4, 1 tick= $10. 00 l Int Margin=$1688, Maint= $1250 l Price Format= 7281 (USD per AD) l One of the Commodity Currencies (along with the Loon and Kiwi) l Has had a bid under it due to possible rate hikes. l The Aussie trades the inverse of the DX and it follows the Euro l The Aussie is great as a backup if you miss a Euro move- you may still have 10 -30 seconds to enter. However, not as liquid as Euro l 38

Canadian Dollar Symbol= 6 C M 4, 1 tick= $10. 00 l Int Margin=$1350, Maint= $1000 l Price Format= 7281 (USD per AD) l One of the Commodity Currencies (along with the Aussie and Kiwi) l Has been very heavy due to possible rate cuts l The Loon trades the inverse of the DX and it follows the Euro and the Aussie l 39

New Zealand Dollar l l l l Symbol= 6 N M 4, 1 tick= $10. 00 Int Margin=$1553, Maint= $1150 Price Format= 6295 (USD per AD) One of the Commodity Currencies (along with the Aussie and Loon) Has had a bid under it due to possible rate hikes The Kiwi trades the inverse of the DX and it follows the Euro and the Aussie The Kiwi is very illiquid, but sometimes it gives you a full 1 -2 minutes to catch a missed play in the Euro or Aussie Best used as a swing trade 40

Currencies Summery Buffett’s 12 billion can’t be all wrong l Slippage- early placement of entry and exit orders is key l Think in terms of safety- The safest currencies are Kiwi, Loon and Franc with the Aussie a distant 4 th l Yen tanked temporarily on news of three Japanese hostages taken in Iraq l Terrorists want to hit our allies- UK, Spain, Italy, Australia and to a lesser extent Japan and Canada l 41

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The Metals 43

NYMEX Exchange l NYMEX Division- Platinum & Palladium – $63 monthly exchange fee l COMEX Division- Gold, Silver & Copper – $63 monthly exchange fee l Hours (for all metals) – Pit Session 6: 20 am to 11: 30 am – Access Session 1: 15 pm to 6: 00 am – Sunday night trading starts at 5 pm 44

Gold Symbol= GC M 4, 1 tick= $10. 00 l Int Margin=$2025, Maint= $1500 l Price Format= 3933 l $10 Price move = $1000/contract l Average Volume= 60 K l Uses l – Jewelry – Electronics – Monetary 45

Gold- Monthly 46

Gold- Fundamentals l The Central Banks – – – l l Don’t believe gold has a place in today’s fiat world Doesn’t earn interest So, lease their gold to bullion banks for 1% per annum Bullion Banks sell the gold and invest in other assets Since gold is leased and not “sold” CB still report it on the books CB will be in trouble when public finds out all the gold is gone Central Banks announce Gold sales? Rothschild's give up Gold Fix – Since 1919, why stop now? Because gold is not going down and the leasing business is over l Negative Real Rates are the DX are key for Gold – Inflation is higher than interest rates l The run in late 70’s was the greatest bull market – NASDAQ would had to reach 8000 to equal gold 47

Gold- Trading Notes l l The $6 Rule Sell offs at the close of the Pit session Beware of Friday sell offs I use mental stops, Access no stops available – Once my stop is hit analyze market- DX, Euro, Bonds l l Watch DX , Bonds & Euro for confirmation Day Session – Trend line plays – Gold & Silver lead and lag- if one moves the other will follow – Place buy orders below Access close if market up or sideways l Access Session – Use “Detail Window” to see bid and offer – Bailout Play – Transition Gap 48

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Gold- 15 Min Trend Line Beginnings 50

Gold- 15 Min Trend Line Starting to Edge 51

Gold- 15 Min Trend Line Termination 52

Gold- 60 Min Trend Line Big Picture 53

Gold- 60 Min Trend Line Macro Picture 54

DX- 15 Min Trend Line 23: 00 Break 55

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Bailout Play 57

Ominous Topping Tail 58

Silver l l l Symbol= SI N 4, 1 tick= $25. 00 Int Margin=$3375, Maint= $3375 Price Format= 6025 $1 Price move = $5000/contract Average Volume= 20 K Uses – – – Jewelry Electronic Industries Photographic Monetary HTS Wires l l 20% of entire production? Silver inventories are declining- now at 50% in 10 yrs. Current demand exceeds mined supplies – Price so low for years that mines closed & no exploration l l Largest short position (%) of any commodity in world history One Word… Buffett 59

Silver- Monthly 60

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The slow drift down in Access 62

Silver- Trading Notes l l Silver doesn’t have a “rule”, use 15 -20 c I use mental stops, Access no stops available – Once my stop is hit analyze market- DX, Euro, Bonds l l Watch DX , Bonds & Euro for confirmation Day Session – Washout Buy – Trend line plays – Gold & Silver lead and lag- if one moves the other will follow – Place buy orders below Access close if market up or sideways l Access Session – Bailout Play – Transition Gap 63

Washout Buy 64

Slow Drift in Access 65

Platinum l l l Symbol= PL N 4, 1 tick= $5. 00 Int Margin=$2200, Maint= $2000 Price Format= 7940 $10 Price move = $500/contract Average Volume= 1200 Uses – – – l Jewelry Automotive Catalysts Chemical & Petroleum Catalysts Electronics Photovoltaic Cells Fuel Cell Catalysts Rare, mine production can't keep up with demand 66

Platinum- Monthly 67

Palladium l l l Symbol= PA M 4, 1 tick= $5. 00 Int Margin=$2200, Maint= $2000 Price Format= 25275 $10 Price move = $1000/contract Average Volume= 1400 Uses – – – – l Automotive Catalysts Electronic Equipment Dental Alloys Chemical Catalyst Photovoltaic Cells Fuel Cell Catalysts Cold Fusion Rare, mine production can't keep up with demand 68

Palladium- Monthly 69

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Palladium and Platinum Trading Notes Very illiquid l Trade the same as Gold and Silver except put your orders in early l Best for days to weeks swing trades l 71

Industrial Metals l Copper – Pulse of the world’s economies l Uranium – Energy shortages – China, Russia & South America building new reactors – Demand far exceeds supply l Power companies are trying to lock in supply 2 & 3 years out over concerns of production shortfalls – The lights go out without Uranium – Not traded on the Futures market, only equities l l Cameco Denison Int’l Uranium Southern Cross CCJ & CCO-TC DEN-TC IUC-TC SXR-TC 72

Crude Oil Symbol= CL M 4, 1 tick= $10. 00 l Int Margin=$2750, Maint= $2500 l Price Format= 3974 l $1 Price move = $1000/contract l Average Volume= 75 K l 73

Crude Oil- Monthly 74

Crude Oil- Fundamentals l l Hubbert's Law Last reserve’s located were in late 1960’s – Prudhoe Bay – North Sea l Mideast Reserves – Reported reserves remain constant for decades then overnight are increased by 50 to 100% l 1990 Saudi Arabia increased 90 billion barrels – All this is done without new fields being explored or put into production l OPEC – Quotas determined by production capacity – Production capacity is directly related to reserves l l China US Dollar 75

Oil Prices & the Stock Market l When year over year oil prices are 80 % higher – Next 18 months in the Stock Market down to flat 76

Crude Oil- Trading Notes l Take your profits at channel tops/trend lines! – There is usually a good pullback for great reentry Be aware of the DOE Inventories report on Wednesday’s l If Access session starts drifting down, exit and buy at better price l Place low buy orders before open of day and Access session l 77

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Opportunities l Euro Jobs Report Trade – – – – First Friday of the month at 6: 30 am Bracket the price at 6: 28 to 6: 29 am Offset 20 ticks each side Use buy & sell stop limit with your limit 20 ticks away Once in, place a an exit order 90 ticks away (just under 1 c) These trend and even with a pullback should continue Only stopped once in last year Target is minimum of 90 ticks- 25 tick entry= 65 ticks l l =Profit of $812 per contract OJ Pork Bellies Coffee 80

OJ- Monthly 81

Pork Bellies- Monthly 82

Coffee- Monthly 83

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