Global Stock Market BLOG - Mike Burnick: Market Volatility Leaves Me Searching for More Profitable Pairs

Stocks enjoy triple-digit gains one day – then suffer equally big losses the next.

Commodities are soaring on a rocket-ride to the moon two weeks ago – then suffer the sharpest correction in over fifty years last week!

So what gives with financial markets these days anyway? In a word: VOLATILITY! And you may as well get used to it.

The Fed’s massive easy-money-fest may actually succeed – at least for awhile – in sparking a rally in some stocks. The most beaten-down sectors are particularly good candidates. But I very much doubt the worst of this mess is over just yet.

In fact, the sheer magnitude of the Fed’s recent Hail-Mary money give-away shows you just what desperate straits we’re in. It’s time for desperate (and drastic) measures from our illustrious central bankers. Anything to keep Wall Street’s head above water!

It’s likely to be a volatile environment for ALL financial assets until the worst of this mess is over. Until then, I’m exploring new trades to take advantage of this volatility.

Natural Gas Plays Catch-up With Crude

A few months ago, I told readers how to capitalize on cheap natural gas prices relative to expensive crude oil. That’s a perfect example of a “pairs” or hedge-trade. In this case I recommended going long natural gas (using the U.S. Natural Gas ETF) and short crude oil (U.S. Oil Index ETF).

What you’re looking for here is to exploit the price difference between two different but related assets: oil and natural gas.

Most investors are constantly making directional bets (either bullish or bearish) on markets. But here you are betting that since natural gas is undervalued relative to crude oil, as the price difference (or spread) narrows you’ll make money.

And the beauty is, it doesn’t really matter what’s happening in the overall market. Natural gas and crude can either rise OR fall – but as long as that price spread narrows in favor of natural gas – you will profit.

That’s exactly what happened over the past few months as natural gas prices jumped about 20% since the beginning of 2008. Meanwhile crude oil lagged and is now just about flat with NO gain since January 1st. This was a profitable narrowing of the price spread in favor of natural gas!

In fact, just last week subscribers to my signiture research letter, Market Shock Trader grabbed gains of 18% in natural gas since November. Now I see a similar trading opportunity ahead… and it’s also in the energy complex. I’ll give you all the details in my blog tomorrow, so stay tuned…