03/02/07

Since 1972 1

Jake Bernstein's
A Comprehensive Guide to Trends, Timing, Cycles & Seasonals in Futures

Website: www.trade-futures.com Vol 2007 #10 5 March 2007 Published 2 March 2007

Volatility Grows - Forecast Confirmed

Like It Or Not - It’s Here To Stay
For many months now I have made it my mission to inform all of
you that volatility in all market sectors was not only here to
stay, but also that it was likely to increase. I pointed out that a
number of factors and forces have combined under the rubric of
“progress” to create conditions that are ripe for massive market
volatility. But what exactly do I mean by “volatility” and why is it
happening? Here are my thoughts, as well as my suggestions,
as to how we can harness the energy of volatility, while at the
same time now being stung by its sharp teeth.
My Definition Of “Volatility”
my clients to read a fabulous book entitled “One World -Ready or
Not” by William Greider. This prophetic book discussed many of
the implications and ramifications of economic and industrial glo-
balization. And we are now there. Nothing short of a worldwide
depression or serious military confrontation between the leading
world economic powers can change what has developed. Whether
we like it not our international interdependence will grow and with
it so will the factors and forces that influence markets. And this
will, in turn, lead to more actively traded markets, more violent
price reactions, more reactions to even the most seemingly insig-
nificant events, or in other words, more volatility. Those who know
how to profit from volatility will prosper - those who do not will be
grist for the financial mill.

The dictionary definition of “volatility” as it applies to the mar-
kets is as follows:
1. “The characteristic of a security, commodity, or market to
rise or fall sharply in price within a short-term period of time.”
Yes, there are other definitions that are more technical, but
this definition is sufficiently descriptive to explain what I mean.
Yet another definition that I prefer is the one for “volatile” which
is obviously the root of the term “volatility.” Several definitions
are listed; of these, there are two that I particularly like:
2. Tending to violence; explosive: a volatile situation with
troops and rioters eager for a confrontation.
3. Flying or capable of flying; volant.
Without a doubt these latter two describe the kinds of markets
that we have witnessed in the last few years and, in particular,
in the last few weeks. As I said earlier, I expect market volatil-
ity to increase in the future. But why?
Global Economy: Good News Or Bad News
The last decade has witnessed the largest economic global-
ization in history. When the stock market sneezes in China
markets throughout the world react. An economic or political
crisis in Europe can have vast ramifications throughout the fi-
nancial centers of the world. Several years ago I advised all of
In This Issue
” Volatility Grows - Forecast Confirmed ” Daily Seasonals ” Commentary & Analysis
Electronic Trading - Friend Or Foe
Now add to the already complicated mix, electronic trading.
Add the ability to execute trades instantly at the push of a
button. Remove the floor broker and/or the market maker from
the equation and you have removed an important buffer. Whether
removing the middle person from the equation is a positive or a
negative is not the issue. What has been happening and what
will continue to happen is increased volatility as traders react
instantly to even minor news events. The reaction of traders
often sets off a spiral or an avalanche of buy and /or sell orders
and with it wide and wild price swings. Those who know how to
profit from volatility will prosper - those who do not will be grist for
the financial mill.
Your Choices
As I see it there are several choices. If you want to ignore the
volatility and maintain a clinically dispassionate stance then
you will need MUCH LARGER stop losses than ever. If, on the
other hand, you want to take advantage of the opportunities
that increased volatility brings with it, then you will need to
LEARN how to do that. These are no longer the markets of the
1950’s, 60’s, 70’s, 80’s or even the 90’s. These are new, vi-
brant, responsive, high volume, and high volatility markets that
can be your friend or your foe. Some of you will need to learn
how to trade short-term for small moves but for more frequent
moves. Many old time indicators will fall by the wayside. Tra-
ditional moving averages and other timing methods that are
slow to change will be chopped to pieces. So is increased
volatility your friend or your foe? It will be your friend if you
know how to tame that bucking bronco and how to ride it.

© 2007 Network Press Inc. • P.O. Box 1970 • Highland Park, Illinois 60035 USA • e-mail: jake@trade-futures.com • 847-831-6900 Fax 847-831-2637
2 03/02/07
COWS (Corn, Oats, Wheat, Soy Complex)
The grain and soybean complex markets have corrected
lower in sympathy with sharply declining stocks. This will
be a very important test of support for the grain and soy-
bean complex markets. And all indications on my techni-
cal work is that the tests will be passed. The long July vs.
short November soybean spread, a classic spread to enter
in a bull market, may have made its low and is now testing
that low. I believe that the decline in these markets is a
healthy thing since it will clear the air of weak longs and
attract new short positions that will add fuel to the bull move
once it resumes. The hotline recommended a long in corn
on the decline. Follow up accordingly. My work suggests
that these bull markets are not over yet.
Soybean Complex
My bullish long-term expectations for the soybean complex
remain fully in effect. I continue to believe, based on my indi-
cators and analyses, that prices can still go much higher af-
ter the developing corrections have run their course. Many of
you have asked me “why” the markets are dropping. My reply
is several fold. First, we have been in major bull tends for quite
some time; markets do not go straight up without correcting
at some point. Second, the markets are falling in sympathy
with stocks, and third, the markets are being sold by those
who believe that we are entering a disinflationary economic
trend in which commodity prices will decline due to decreased
demand.This is NOT indicated by my work. My work sug-
gests that such a decline in demand is likely to be phasic
rather than basic (i.e., temporary).
Cattle / Hogs
My long-term forecast for both markets(and the other
meats) has been bullish. Prices have recovered well from
recent corrections and the cattle market appears to be in a
solid uptrend as expected. Await a new recommendation
to go long and/or spread recommendations. The sell-off in
stocks has also brought a small decline in the meats, but
my indicators and work has not changed on a long-term
basis.These markets are still likely to move to all time highs
over the next 12 months.
Corn: The drop in prices is expected to find good support. I
recommended exiting longs at resistance after a large rally
developed. I recommended entering the long side again on
the current decline to support. The correction down is de-
veloping. In spite of recoveries to resistance I advised
you that the market remained in a strong resistance area.
Await follow up recommendations via the e-mail hotlines.
My commentary last week was “the behavior of the market
as we go to press suggests that a further decline to weekly
support may develop.” That is now happening and I con-
sider it to be reasonable and normal.
Wheat: The market rallied strongly, however, a short-term
top was expected and it has been made. As of this writing,
the intermediate-term trend remains bullish, in spite of the
continuing decline. I recommended a short-term long posi-
tion that should have been closed out at about breakeven
when the market failed to perform as expected. Await an-
other buy recommendation soon.
Oats: Trading volume in oats is too thin for specific recom-
mendations. The market led the entire complex by show-
ing persistent strength for many weeks. I advised you that
the recent decline was likely to be nothing more than a
correction to support. I remain bullish. Although prices have
fallen sharply with the other markets in this complex, they
are now at intermediate-term support where one might con-
sider a long position. Should the oats market fail to find
short-term support in the 233-238 area (May futures), I will
be concerned about all grain and soybean markets.
Day Trading Mastery Seminar
Los Angeles 14-15 April 2007
In response to many requests, I have scheduled a 2-day
seminar on day trading only. With the virtually explosive
growth in online electronic trading there are now many
viable day trading opportunities in many of the markets.
This seminar will focus exclusively on these opportunities.
The seminar is filling up and space is LIMITED so that I
can give each student the attention they need.
03/02/07 3

At Critical Support
03/02/07
Metals
The markets are still in long-term bull trends in spite of the
large corrections down. The rallies in platinum, copper, silver
and gold have reasserted the underlying strength of these
major bull markets and the sell-off in stock markets all over
the world has forced some liquidation due to margin calls
in stocks. I do not see any immediate danger to the
continuation of these bull trends. Declines to long-term
support have previously, as predicted, proven to be buying
opportunities. I advised short-term traders to be prepared
for a correction to the downside. This does not, however,
alter my long-term or intermediate-term bullish expectations.
The gold market could very well be headed for $1000, but a
decisive close above resistance is necessary first.
Copper: Although the decline was sharp and steep, I told
you that good technical support was likely to develop. And
it did. The current rally COULD challenge major resistance.
Given the extreme price volatility in this market the odds of
a large loss are substantial. I, therefore, advised most
traders to AVOID this market. Should copper futures
overcome their March highs AFTER the month is over, a
move to all time highs could be next. The seasonal rally
developed as expected.
Gold: I advised you to get ready for another rally. This rally is
now in process. See comments above. I am still bullish with
Currencies
Aussie $: I told you that the expected low in metals and
energies would likely result in a short-term Aus$ rally. The
short-term trend topped as expected. A top appears to
have developed.
Eurocurrency and Swiss Franc: Both markets rallied to
projected long-term resistance areas and topped as expected.
I advised you that “some of my indicators have turned bearish.”
The decline has developed. Short-term trends have now turned
bullish with a test of intermediate-term resistance likely.
Japanese Yen: I told you to expect a MAJOR rally in the
Yen vs. US dollar over the next few years. The market has
tested 2005 lows, and has turned sharply higher on my short-
term indicators. Short-term trend remains bullish.
5
the $707 level as my next target. I told you to “ WATCH for a
possible short-term selloff first.” That sell-off is now in process.
Silver: Long-term investors who subscribe to my services
and reports were advised to hold positions in silver and silver
mining stocks with trailing stops to lock in profits. Silver
has major upside potential. I consider declines to be buying
opportunities. There has been a seasonal tendency for lower
prices over the next few weeks. That decline is now in
process but it should find good support.
Platinum/Palladium: My long-term bullish forecast for both
markets remains in effect. The recent downside corrections
were expected and were seen as reasonable developments
in secular bull markets.I believe that palladium has
considerable upside potential and that it may be the best
percentage play in the metals. Because trading volume is
very thin, I advise caution and the use of LIMIT ORDERS
only in palladium as well as platinum. Palladium remains
one of my favorite long-term buy and hold markets, however,
the thin volume necessitates the use of limit orders in order
to avoid a bad price fill. The markets have been relatively
immune to the selloff in stock markets.I still consider declines
to support to be buying opportunities.
US Dollar: I am long-term bullish on the US dollar. The short-
term trend remains bullish as expected.The hotline
recommended a short-term long position that should have
been closed out at a profit. The short-term trend is bullish
with another test of long-term support developing.
Canadian $: A buy recommendation was given via the
hotline. Bullish divergence continues to suggest that a major
low could come at any time now. Hold longs.
BrPound: The market has made an 8.1-year cycle top almost
exactly as predicted. I expected the rally to end at or near
long-term or intermediate-term resistance. Trend remains
intermediate-term lower and short-term topping. The market
has encountered considerable resistance.
6 03/02/07

Tropicals
Cocoa: My forecast has been very bullish and it remains
very bullish. My advice has been as follows: “There are nu-
merous signs on my indicators that the breakout has started.”
The market has literally come to life as the very strong uptrend
continues. I consider this trend to be part and parcel of the
overall commodity bull market that is likely to continue and
spread to other markets in this sector. The market has proven
itself in recent weeks as it continues to head to long-term
resistance as discussed in my 2007 Annual Forecast.
Sugar: The market declined to support, as it has been
attempting to form a major bullish divergence pattern that
should explode to the upside at any time now in spite of
the general short-term downtrend in commodity prices. In-
deed, the upturn in energies could help this move occur.
Due to my long-term bullish expectations, I recommended
rolling the long March trade to long July. There are some new
signs of bullish life in the sugar market and my long-term
bullish expectations could soon come to pass.
Orange Juice: My outlook for OJ has been as follows: “I
DO NOT see any significant technical indications of a long-
term top as yet. As we go to press, the technical situation is
beginning to change. The huge bull market may soon be
revived.” I told you as follows: “Unless prices can recover to
recent highs over the next few weeks, the odds favor a potential
decline to long-term support in the 175 area, as the expected
decline continues.” Prices found strong support and have
rallied to test highs. A new leg to the upside may be unfolding.
Coffee: My long-term cycles have been telling me that coffee
prices were overdue for a major rally that could take prices
much higher in 2006 and beyond. Although the market has
declined in the last few weeks, my long-term outlook has not
changed. I believe that coffee could very well go on to become
the next big bull market. Indeed, on a long-term basis the
market is well overdue for a rally. And we know that rallies in
coffee tends to be very strong, large and persistent. Yet this
is not a market for the new trader or the undercapitalized trader.
Risk is high which prompts my: RISK WARNING! The coffee
market has had a history of major volatility and the
market has been too quiet for too long. Price fills can
be very poor if you use “at the market” orders.

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Fibers
Cotton: I continue to expect a strong intermediate and
long rally in cotton for the intermediate and long-term. Based
on my long-term trend and timing indicators, as well as the
cycles I follow, I believe that it’s just a question of time and
patience before cotton prices begin a substantial rally. All
recommendations in cotton are high risk due to the large
intraday volatility.
The recent decline in cotton prices has set up a buy pattern
for the next rally. The daily indicators I follow have turned
bullish and have tested support successfully. The market
should now rally in spite of weakness in the grains.
Lumber: A major low COULD BE developing based on the
long-term and intermediate-term cycles. The long-term cycles,
as well as the yearly seasonals that I have been studying for
many years, suggest that lows are very likely. I do not
anticipate giving any recommendations unless trading
volume increases to at least 5000 contracts daily. I believe
that demand for lumber will remain high,and that a longer
term upward cycle has started. The decline in the stock
market has taken lumber with it as lows are being tested.
This is the prime time to begin watching for a bullish
divergence low to develop. Bearish sentiment is pervasive
which is another reason that lows might be developing.
03/02/07
TBonds/TNotes
My expectation of higher interest rates is coming to pass and
I believe that there is more coming AFTER the current decline
in rates has run its course. My forecast has not changed.
Money is moving into bonds as stocks move lower, but bear
in mind that the correction in stocks was long overdue and
should come as no surprise.
I expected rates to decline over the short-term and to rally
over the long-term.The long-standing and reliable cycles and
patterns suggest that we will see inflation, as opposed to re-
cession, and with that, higher interest rate trends.
My cyclical analyses lead me to conclude that interest rates
will move higher - perhaps considerably higher - and for sev-
eral years as an inflationary “blow-off” is likely to develop in
commodity prices. Overall, I believe that many commodity
markets are still low priced.The current decline in commodi-
ties is, in my view, a reaction to margin selling in stocks. The
hotline recommended a long position in TBond futures. This
position was rolled into June futures and closed out at a profit
on the recent rally.
7
Stocks
Stocks finally collapsed in a long overdue correction to an
extended bull market. And so my advice prior to the decline
was clear and concise as follows: “BUY only quality stocks
on declines to intermediate and long-term support. AVOID
highly speculative stocks and new IPO high flying stocks.
HOLD and BUY precious metals shares as well as shares in
stocks that are related to underlying commodity price moves.
This conservative approach will, in my view, serve you well in
the long run although you may not be happy in the very short
run. In the past such very lengthy periods of bearish diver-
gence had resulted in large and sudden declines. CAUTION!”
I told you that stock markets all over the world were overex-
tended in their rallies and that when the drop came it would be
fast, severe, and furious and “seemingly out of nowhere.” His-
tory has once again repeated, but what’s next? Watch for an
equally severe reaction back to the upside once this panic
selling has run its course. And that recovery rally could begin
sooner than many would have you believe. The recovery rally
could be much stronger than many expect.
8 03/02/07
Petroleum Complex
I advised you several weeks prior to the current strong recov- The rallies that are now beginning are part of what I believe to
ery rally that a turn was imminent and that it could be a fairly be a 2-3 year cyclical low that should bring prices generally
large correction in an otherwise bear trend. The corrections higher until late 2007, and possibly into early 2008, at which
up have started but they are not without their large price time a resurgence of the longer term bear markets will likely
swings. I believe that all of the energy complex markets are develop with lows not likely to develop until 2009.
likely to continue their short-term uptrends.
Sanity and Good Sense in Times of High Volatility
Page one of this issue discussed the expansion in market volatility throughout all the financial markets and in virtually every
world economy.While volatility can present many profitable opportunities, it also presents significant challenges to the disci-
pline and psychology of traders and investors. Times such as these require, indeed they demand, sanity and good judgment
if financial survival and profits are your goals. The more volatile the markets become and the larger the price swings become,
the more severely your discipline and psychology will be tested. As always these two factors are the weakest links in the
trading chain. These are the times that test the very core of your being and essence as a trader and as an investor. Don’t fall
victim to panic, self doubt and the irrational behavior of others. Be a contrarian - when the lemmings are jumping off the cliff look
for opportunities and, in the process, you will likely find some of the best trades and investments you have ever made.

The “Rocket Scientist” and The Trader

About nine months ago I had the good fortune to meet a trader who came to me as a student. He wanted to learn my
trading methods. He was an experienced trader in stocks and commodities who had achieved a good degree of success
as a longer term investor, but he wanted to learn short-term trading methods that he could apply to markets such as the
S&P and currencies. In my meetings with him I came to discover that he was a highly qualified engineer working for a
major aerospace and aircraft company. Slowly he began to share some of his observations and trading experiences with
me. His insights were remarkable and very apropos to my trading methods. I am never too old to learn and never too self-
absorbed to feel that my work is perfect, or that it cannot be improved. His concepts combined with my methods have
been a revelation.Together, Steve and I developed an S&P trading system that represents a major advance in trading
systems for this volatile market. Await additional information in the next issue of this newsletter.

There is a risk of loss in futures trading

Comments in this letter are subject to change as a function of market conditions. Recommendations are given via hotline, fax, e-mail, Internet or tape updates.

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E-Mail: Jake Bernstein at jake@trade-futures.com 847-831-6900 Fax 847-831-2637
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responsible for their own actions.This letter is not to be construed as an offer to sell or a solicitation to buy any commodity futures referred to herein. No claim is made that recommendations
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