General Market Commentary

After the release of the 2010 Mid-Year Commodity Review and Forecast Report (http://futurespress.com/mega-forecast3.html), the WCR is finally back from its long hiatus.  The key market forecasts – a Japanese Yen bull run and coffee market breakout both continue to offer opportunity.  These moves have likely just begun and should offer more upside in coming weeks and months.  The stock market looks ugly and the U.S. dollar has seen the bulk of its retracement - once again making it a buy on dips.  Markets rarely, if ever, move in a straight line and these markets are no exception, suggesting these recent moves are well within anticipated retracement levels without going off trend.

Energies

Crude oil is in a congestion pattern below the highs, and I expect the highs to hold and the market to trend lower in coming weeks and months.  I recommend a short crude oil play and then a long rbob versus short heating oil (1 to 1) futures spread.  Natural gas remains a buy with straight long term deep out of the money calls.

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Financials      

Friday’s stock market plunge could just be the beginning of a nightmare few weeks for stock traders as the potential for follow-through and quick selloff thru 1000 on the S&P is real.  Monday will offer a critical momentum indicator day, although not quite the tell-all day some chart analysts may expect.  If the market can drop 20-30 points on the S&P on Monday then downside volatility remains strong and 1000 could be seen very quickly.  If the market congests within the Friday range then a close above 1100 by Friday is needed to reverse momentum bullish.  Bonds are likely to rise on a stock market fallout, although the right play here is a long strangle.  The U.S. dollar is once again a buy on this recent dip, with scaling into straight calls recommended.  The euro and pound would be sells, along with the Australian dollar and Canadian dollar.  The Japanese Yen remains a breakout buy recommendation, showing strength during stock market declines.  I continue to recommend the yen and standby my forecast that:

The Japanese Yen futures will hit 140 before 80 or I will quit writing the Weekend Commodities Review…forever.

Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Grains

Grains continue to show strength as concerns over wheat’s poor Canadian production and corn’s increased demand from China and general ethanol usage has the markets running.  Sell into this move on corn at 4.18, wheat at 6.20 and beans at 10.01, respectively.  Rice remains a buy with straight calls.

Meats            

Hogs have a clear chart pattern suggesting congestion until 85.10 or 78.20 is broken on the August contract.  Give until 86.70 or 76.20 on either side before confirming the break.  Live cattle is a sell with puts or short futures at current levels.

Metals

Copper is showing strong signs of a market failure in the making, with a target of 2.38 in short order.  The China demand that was ever-present in 2008 and 2009 should disappear in coming weeks and months, forcing a long liquidation in this market and a severe price plunge.  Gold and silver remain supportive on general global demand, but overall these markets are in need of correction and I recommend puts for December. 

Softs          

Coffee continues to build support right near the recent highs, offering congestion ahead of another bull breakout.  Cocoa is a sell with the recent rally being a likely last ditch effort to sucker in the longs – puts are recommended.  Cotton is a bull play with a massive rally expected during the 2^nd half of 2010.  Sugar is choppy but should have one more bull push left in it.  OJ remains a strong sell with a 110 target.  Lumber is a cycle buy ahead of an economic and housing turnaround. 

General Market Commentary

The stock market confirmed a bull trend last week after shaking off negative economic news and breaking above the neckline of what will now be a hindsight head and shoulders formation on a daily chart.  The overnight rally in the S&P is another confirmation of this breakout.  Outside of a small shot at a Monday market reversal the S&P is bullish through Wednesday until 2:15pm ET when the Fed announces the FOMC interest rate policy decision and reminds the market that there is significant global economic weakness that will hinder growth and global demand.

Energies

Crude oil is unlikely to move much higher, with a bearish Mound Ladle formation indicating a top between 79.18 and 81.44 (August contract).  Therefore bear spreads are recommended.  This week I will be issuing a bearish trade in the crude oil market.  View my trade rec by subscribing to the Mound Trade Signals premium service at www.MoundTradeSignals.com.  I recommend unloading the short crude oil versus long natural gas spread.  Natural gas is likely to pullback here but the right strategy is a long strangle to play volatility expansion.

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Financials      

The stock market is in a bull breakout but the play is to sell into this move between 1145-1160 on the S&P.  Bonds are likely to rally off the FOMC announcement on Wednesday as the Fed should not be anywhere near a rate hike.  The dollar is choppy and developing a bearish pattern, capable of retracing significantly here to 83.50.  The market thoroughly penetrated my 86 target and there is a likelihood we will see 90-91 before year’s end, but in the near term there is enough downside risk that I recommend looking elsewhere for opportunity.  The Japanese Yen remains a strong buy as plans to reduce corporate taxes and other incentives attracting foreign investment improve confidence in Japan.  The Canadian dollar broke through critical resistance last week, albeit in weak fashion, and could be back to a bull market.  I am pessimistic, but recommend waiting to go short until the market breaks below 9580.  Until that happens it’s a bull market.

Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Grains

I anticipate a grains rally the first half of this week until the Fed reignites global economy fears Wednesday afternoon, leading to a possible Thursday selloff across the board.  Long strangles are recommended in soybeans and corn, with wheat remaining a value buy on dips with what I believe is the year’s low already in.  Rough rice is a technical sell with trend line resistance and just about every momentum indicator suggesting more downside is ahead.  However the gut says there is a turning point upon us and if you are willing to jump in front of this selloff then I think the call side will pay dividends and recommend be contrarian to the technicals.

Meats            

Hogs have reversed their bearish chart pattern and any close higher than Friday’s high indicates a bull market reversal.  I expect trending in this market to disappear and choppy congestion to develop.  Cattle remains bearish.

Metals

Gold is worthy of a strong look this week.  The market is setting up a short squeeze rally, one that could run up $100 in a blink of an eye, but this same squeeze will likely signal a top in this market and I recommend being prepared to buy straight long term gold puts if the market should spike to the 1300 area.  Silver is showing signs of volatility expansion and long strangles are recommended.  Copper remains bearish on declining global demand.

Softs          

Coffee exploded with a short covering rally that is still very much in play.  This market has nothing but record breaking crop forecasts and yet it is breaking out to multi-year highs.  Get on this bandwagon as the upside potential remains extreme, but not without downside risk so look to use puts as protection on futures or bull spreads to play the upside move.  It is still worth looking at a ratio call backspread to play a further breakout as congestion or a slow uptrend is unlikely.  Cocoa remains a strong sell.  Cotton is a buy on dips.  OJ is a sell as the Brazilian crop is looking strong and declining global demand will help to pressure prices.  Sugar is a buy with a target of 1900.  Lumber is a strong cycle changing buy ahead of a 2011 economic turnaround.

Energies

It is difficult for the oil spill news to become relevant to energy sector price action because market participants are not completely sure how to assess the impact on prices long term.  In reality there is still no end in site to the negative news, but the lack of definitive assessment of the impact means that it is a net non-event for the time being.  Summer driving demand is upon us and a warm summer means potential demand spikes for RBOB and natural gas.  I remain bearish all energies except natural gas as the weak stock market will likely pressure oil prices.  Continue to play long nat gas against short crude oil (1 to 1 ratio).

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Financials      

The stock market rebounded last week after plunging the previous Friday on negative jobs data.  Take the bounce as a chance to get short as I believe another wave of selling is coming shortly.  Keep a close eye on the next two days as a negative close (preferably Monday) will signal more downside or a chance at near term congestion.  Bonds remain a buy off the employment report and bearish stock market outlook.  The dollar continues to chop around near critical long term pennant resistance but I suspect it breaks out in the next few weeks and runs to around 91.  The Japanese yen remains a strong buy.  The Canadian dollar bounced on good housing news and a general positive outlook.  On a chart it is brushing up right on critical near term trend line resistance and I would use this technical gauge to determine the trend going forward one way or the other.

Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Grains

Grains are all about the weather this time of year and in Canada they are getting some bullish wheat news from very wet crops.  Overall the grain markets will be driven lower, however, by a strong dollar and weak stock market/global demand outlook.  When everyone starts hoping that China demand will offset strong supplies then you know we are in for a brutal couple of months.  Rice is worthy of straight calls to play discounted volatility premium and the exposure to a global demand spike.

USDA Rant

The USDA came out last week and said that increased ethanol production thru the month of March will spike demand for corn.  I am sorry but this is tantamount to saying that travel to Europe will increase in the second half of the year because of the weak euro currency.  What happens if the euro rallies, or Icelandic volcanoes erupt, or war breaks out, or a global depression hits?  So you are saying travel is currency dependant?  So you would say corn inventory is ethanol demand dependant?  And even if you can say that then how can you say corn will have tight supplies because we expect the surprise ethanol production that occurred in Q1 to continue for the next 6 months?  You can’t.  The USDA just overstepped.  Seasonal demand happens all the time and ethanol is no different than any other market that is susceptible to it.  So what happens if ethanol demand over the summer isn’t what they thought?  Well there goes the corn market plummeting on a poor guess-o-rama by the USDA.

Meats            

Hogs and cattle both have very ugly chart patterns suggesting lower prices ahead.  Cattle in particular has a nasty daily chart that needs a fresh low and close below Friday’s low to confirm further downside momentum.

Metals

Gold continues to see large foreign buying on a flight to quality as the concerns over the euro currency remain.  Gold is an irrational market as far as its correlation to other market activity, but this divergence is not necessarily bearish.  When the market walks out on gold it will be an historic price plunge that makes long term puts worth having in the portfolio, but in the meantime anything is possible in this market condition. Silver on the other hand is way off the highs in anticipation of a let down in gold, therefore it will need to play catch up if gold presses higher.  Copper is hoping that recent numbers out of China will boost prices as global demand may be better than recently believed, but I would discourage anyone from buying into the numbers coming out of China and recommend shorts in this market.

Softs          

Coffee broke out on Friday as the option expiration, large robusta contract roll and concerns over a Vietnam supply squeeze has short covering rally written all over it.  Monday is key to see follow through.  The market has the potential to straight spike to just about any extreme price point (160?, 180?, 240?), but needs momentum and follow through from Friday to confirm.  I would recommend buying dips with futures along with put protection.  Cotton remains a low acreage bull play.  Cocoa is a strong sell with what I believe is a clear top on a technical level and little to justify these prices on a fundamental outlook basis.  OJ is a sell on this bounce with a move to 128 expected shortly.  Sugar is due for a run to 1900 as the market congests near recent lows.  Buy calls to play a volatility spike.  Lumber remains a strong buy ahead of euro currency support.

General Comments

The past two weeks have offered choppy trade in the dollar and stock market, but Friday’s employment report changed the dynamic of the markets for weeks to come.  It takes negative employment data like what was seen on Friday for economists, analysts, fund managers and traders to begin to accept that the recession was only temporarily bailed out.  The economy is not out of a recession.  Housing is not recovering.  Global demand is weak.  Unfortunately the recession appears to be alive and well. 

Energies

Oil prices remain bearish as a strong dollar, concerns over China growth, and global economic panic suggest declining demand for oil in the 2^nd half of 2010.  Natural gas continues to be a bull play against a short crude oil.

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Financials      

Stocks plummeted on Friday after unemployment rose to near 10% levels once again.  This is likely going to plunge consumer confidence and pressure stocks on any rally attempt.  Bonds spiked on the news and rightfully so, since the prospects for corporate growth are no longer gaining ground and a flight to quality is in order.  The dollar set fresh highs as its inverse relationship to stocks along with a continued ‘walk-out’ on the euro currency has the dollar screaming higher.  Critical long term pennant resistance is a major hurdle for this market to overcome, but in my opinion the dollar will bust through that price resistance and test 91 in short order.  This upward action in the dollar will push the euro to about 115 at which point it will likely be a buy.  The Japanese yen is going to be a safe haven for those who want out of the euro currency and either want no part of the U.S. dollar or who just seek diversification.  A push higher in bond prices will also be a catalyst for more yen buying.  The Australian dollar remains a strong short.  The Canadian dollar has shown support following a hike in interest rates, which for all intensive purposes was more for show than practicality.  In fact if they continue to hike rates then they could force a major economic collapse there.  I recommend selling into this support.

Grains

Grains fell out of bed the last two weeks and the selloff is clearly on!  Beans are holding a base line support but I would not anticipate that lasting much longer.  The grain market is reeling from a shift in global economic growth expectations.  Without global demand grain prices will likely fall 20% or more.  Wheat remains a value play as a spread buy against a short bean or corn.

Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Meats            

Cattle remains bearish on declining grain prices and fears of reduced global demand.  Hogs broke trend line support and have turned bearish as of Friday’s market collapse.  I would not get short this market just yet as I am not convinced that this move is real.  A close below Friday’s low would, however, be a confirming indicator.

Metals

Gold continues to hold support and diverge from silver as large foreign flight to quality demand boosts price.  Gold remains a safe haven, but as the dollar gains strength and gold continues to surge, the disparity to foreign investors is growing wider and wider.  What I mean by this is that to someone holding euros the price of gold has actually increased about $60 per ounce more than what a U.S. dollar gold buyer would pay in just the last two weeks because of the near 5% decline in the euro currency over that time.  That is just a small part of the bigger move that has occurred over the past several months.  Eventually the demand from these beaten up currency holders will dissipate and leave a diminished buying pool that will have a tough time holding up the price.  Silver has taken a beating and illustrates that without that fund and foreign buying demand that gold would likely be significantly lower.

Softs          

Coffee is holding up very nicely amid a dollar rally, showing its resilience and ability to rally when the dollar eventually retraces.  Cocoa remains a strong sell, with a total market failure expected on a break below 2728.  Cotton continues to be a buy on dips as the long term outlook suggests more upside ahead despite a global demand slowdown.  OJ is a sell to 110.  Sugar is a buy with a bounce expected to 1900.  Lumber is a strong buy after extreme selling plunged this market about 32% in under two months.

General Comments

After a strong bounce back in the euro the week ahead sets up a pre-holiday congestion week.  I believe the risk remains to the downside in the euro and stock market but overall I suspect volatility to stay in range and anticipate market congestion for a few days.  Lumber’s recent price collapse of about 30% in under 2 months suggests that the euro currency decline could have a horrific impact on U.S. housing demand.  This leading indicator should not be overlooked - even if it is a temporary decline it remains a strong indicator of the types of economic problems that are ahead.

Energies

Oil prices continue to collapse as global economic woes abound.  Declining growth globally, if realized for a period of more than a year from this point, could cause oil prices to spiral to $40 or lower.  I suspect that buying bear put spreads during bounce days of $2-$5 would be a solid strategy.  Avoid short futures for extended time frames because of the numerous long volatility spike events that frequently hit this market, especially heading into hurricane season.  The oil spill in the Gulf continues to be of great concern, but short term this is unlikely to support price.  Long term it could lead to a significant drop in potential Gulf supply if mandates and policy changes push suppliers out.  Natural gas remains a buy on this recent pullback, but use calls to play the volatility spike as a bearish shake out is possible here if oil prices continue to slide.

Financials      

Stocks were in panic mode most of the week as fears of an EU led global economic slowdown wreaks havoc on U.S. companies’ recovery/growth forecasts.  I suspect this week will offer choppy trade but overall I recommend selling into bounces to play a move to 1020 on the S&P.  The dollar remains a buy, ignoring the late week rally in the euro currency as it is likely short lived.  The reality is that there is little to instill confidence in the euro currency long term and rallies will be used as opportunities to liquidate currency holdings as a global shift away from the euro currency continues for months.  The Australian dollar made one of the largest 5 day declines in its recent history and really has little holding it up from a run to 72 – yes 72.  The yen remains a strong buy.  The Canadian dollar is in a catch 22 with its upcoming BOC interest rate meeting on June 1^st.  Hike rates as expected and avoid inflation panic but destroy your economy.  Do nothing and see inflation fears plunge the Canadian dollar to the mid-80s.  To me the currency is a short with puts 6-9 months out.

Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Grains

Corn is catching some attention as concerns over China imports have the demand side salivating.  I would not get too excited but this could artificially support price for a little while.  My gut says it is a great entry for a short.  Wheat remains a value buy and soybeans a sell from both a supply and demand perspective.

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Meats            

The price correction in cattle is on and I do not see an end in site – put buying is recommended.  I suspect hogs are a buy here on a technical test of the lower part of an up trending channel.

Metals

Gold panic buying deflated a bit last week but the market is still exposed to erratic behavior.  I remain long term bearish with little interest other than buying puts during days of volatility premium drop.  Silver also remains stuck on gold’s trend so puts are recommended there long term.  Copper remains a sell on expectations of a drop in global demand.

Softs          

Coffee is remaining impressively stable amid a dollar rally and forecasts for record Brazilian crop supplies.  This forecast is hogwash to me and I believe coffee will hit 170 within a few months, therefore I recommend buying calls or bull call spreads on this recent dip.  Cocoa is being supported at really the last remaining technical support area, mainly on a handful of bullish articles circulating that discuss poor yielding trees and rising demand/supply shortfall expectations.  I call a spade a spade and to me this is a PR pump session that has little real merit – we are at some of the highest prices ever seen in cocoa and I could care less about the next 5 year outlook of declining tree production and rising demand forecasts – we are in a global economic panic folks and there is little argument to support these high prices in cocoa – I am recommending shorts with long term and near term put plays.  Cotton remains a buy with technical congestion suggesting a breakout rally in coming weeks.  OJ is a sell here with a high below 152 expected.  Sugar is a buy on a dead cat bounce with a move to 1900 anticipated.  Lumber prices have collapsed as the European walk out on U.S. home buying may set back the housing recovery by a few years.  However, the massive decline seems excessive and a quick yo-yo move to 300 is possible.

General Comments

After a very brief hiatus, the euro debacle took center stage and brought commodity markets crumbling down.  There are two issues here that are acting like a double edged sword and pressuring commodity prices.  First the strong dollar means reduced global demand for commodities.  Second the destruction of the euro is both structural and economic in nature and that means that there is economic crisis in the EU.  This suggests not only a potential collapse of several EU countries but also a significant drop in buying power and demand.  Combined these two components will limit commodity inflation for a long time period.  The highs for many key commodities I believe are already in and the trade over the next several months is on the short side. 

Energies

Oil prices fell as the publicity of the Gulf spill draws less and less attention (despite the likelihood that this spill will have a profound affect on the United States) and the collapse of the Euro pressures global demand.  I recommend selling into bounces with long puts.  Natural gas remains a long term buy and I continue to see the long nat gas versus short crude oil spread as a solid play through May.

Financials      

There are several critical issues allowing the stock market to potentially test the fat-finger lows.  A lack of clear information on the fat finger trade has a negative intermediate term impact on market psychology.  The volcano in Iceland remains a lingering and potential hot-button economic issue reliant on winds and mother nature to determine its fate.  Germany’s opposition to the support provided to Greece sets the tone for constant debate over the policy structure of the euro and its ability to survive as a currency.  Overall these issues will help further the liquidation in the stock market, which is likely to test 10,000 on the Dow again in short order.  Bonds remain a buy on flight to quality and a shift to more conservative investment holdings.  In addition the lack of strength in European economies may create a demand shift from investors in government bond holdings from those countries.  At one point higher rates do not necessarily make the risk worthwhile for those investors.  The U.S. dollar surged through my long running forecast of a move to 86.  The upside potential remains great and panic selling in the euro could cause the dollar to spike to as high as 91 on this current move.  However, I recommend buying calls in the euro on a move to 1.1550 as a short term oversold play should it reach those levels.  The Canadian dollar, Aussie dollar and British Pound all remain strong sells.  The Japanese yen should spike rally to 112 this week if bullish momentum is going to resume in that market near term.

Grains

Volatility remained suppressed in this sector last week but do not expect that to continue.  This time of year grains are subject to wild swings based on weather outlook, but more importantly the U.S. dollar’s rise will begin to force a strong decline in grain prices over the next two months due to declining foreign demand.  I recommend buying puts in corn and soybeans, while wheat remains a value long between 4.50 and 5.00.

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Meats            

Cattle nosedived last week and should continue to selloff dramatically in coming weeks and months.  Put buying on bounces is recommended.  Despite hogs being overdue for a price correction, I do not see the current technical setup as overly bearish until the market penetrates 82 on the July contract.

Metals

The stock market decline and euro panic continues to skyrocket gold prices amid a flight to quality play.  It is truly impressive just how strong the gold market is if you take into account the cost for a euro currency investor to buy gold.  If gold went to 1230 during a 12% drop in the euro currency then to someone holding euros gold would appear to be trading for a currency adjusted price of about 1370.  When markets are in a buying hysteria mode like gold is currently, price can get out of control very quickly.  Gold could hit 2,000 in a month or deflate back down to 1,000 or 900 – not to be ambiguous in my views as I am long term bearish, but rather acknowledging panic trading for the unpredictable hysteria that it is.  While long term the dollar connection will impact price, it is clearly not the driver of gold prices at the moment.  Silver volatility expansion should increase as gold continues to set new highs.  Copper remains a strong sell as global demand decreases.

Softs          

Coffee is fending off the dollar strength quite well and setting up a volatile breakout rally in coming weeks.  Buy bull call spreads or long futures with put protection.  Cocoa has failed miserably and on a technical level has one more band of support before testing a 50% retracement, then a huge collapse could occur.  The market is reeling from the possible plunge in European demand and the strong dollar is helping some stubborn longs run for the exits.  Long term deep out of the money puts are recommended.  Cotton remains a buy on dips, playing off of low acreage and general cyclical undersupply.  Sugar is a buy at these levels despite a surplus supply.  OJ is showing signs of technical support but I would be shocked if we rallied much further here.  Because of the lift in prices I would recommend puts if prices trade in the mid-140s. 

Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

General Comments

Over the weekend the EU and IMF agree to a trillion dollar bailout for Greece.  The stock market is screaming higher as I write this report and the S&P is showing what could be the largest pre-open gap higher in its history.  This short squeeze is one heck of an opportunity to get short this market but the world better pay attention to the real underlying technical action.  There are two critical events unfolding – volatility expansion and the risk of a spike bottom.  Simply put if this rally holds then this constitutes a spike lower and quick recovery, a volatile expansion and likely contraction – basically a blip on the screen!  I just don’t see it happening that way.  To me the market wipes this rally out and tests and breaks the lows.  I suspect that the volatility expansion continues and there will be major market fallout ahead. 

Energies

Oil prices collapsed as the stock market plunged and the dollar surged.  The Gulf spill is far from over but the capping of the spill is comparable to reaching the apex of the problem and has helped a sell-the-news reaction.  Today’s price surge appears to be temporary and I do not expect the highs to get tested on this bounce.  Natural gas remains a long term buy.

Financials      

In my opinion those that got punched in the gut with last week’s stock market collapse just received a gift this morning to get out at drastically improved prices.  While it is possible the high and low has been set and a congestion period could develop, I just do not see that as the likely event.  The likely event is a test and break of the lows.  The bond market traded inverse but is holding most of those gains, thus indicating a continued flight to quality and bearish stock market outlook.  Bond highs are also likely to be tested and broken.  The dollar came within just 40 odd ticks of hitting my long term forecast that:

The dollar will hit 86 before it breaks below 70 or I will stop writing the Weekend Commodities Review... forever. 

I would like nothing more than to take this forecast and put it in the books as a great call, but 86 was not hit and anyone who is a trader knows close doesn’t mean a thing.  It could be some time before 86 is reached – heck I might be writing this for the rest of the year without my target being hit, but I see a likely collapse in the euro still unfolding and a bottom yet to be hit there.  The dollar still has bullish components that suggest more upside sooner rather than later.  Keep in mind currency trends happen over years, not days or weeks.  The dollar zoomed 5% higher in a matter of weeks and that is unusual for a currency.  It is quite reasonable for the market to retrace much of that move before heading higher once again.  What is critical here is that volatility has returned to the markets.  The euro remains a sell along with Aussie dollar, Canadian dollar and British pound.  The Japanese yen exploded with upside volatility and showed why it’s called the wild wild west of currencies.  The yen will track the dollar’s move and therefore I believe the highs set last week will ultimately be penetrated.  The current dip is a buying opportunity but the surge last week makes the volatility premium in options a bit too high for my tastes.

Grains

Grains were fairly benign compared to other markets last week as the big moves and volatility appeared to leave this sector alone.  Do not be surprised to see a lagging volatility occur in this sector and therefore long strangles are recommended in beans and corn.  I remain bearish corn and beans and recommend value buying wheat anywhere between 4.50 and 5.00.

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Meats            

Cattle continues to edge higher and I expect a strong decline within the next two months.  I recommend put buying at these levels.  Hogs appeared to top in a congestive pattern the past few weeks but this congestion is not overwhelmingly bearish.  The bear turn is not confirmed but rather the momentum of the recent price surge has come back to the mid-range of the uptrending channel.  While this could be a top I am not convinced and would avoid getting short here.

Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Metals

Gold proved it can rally regardless of the U.S. dollar when the world is in panic.  The stock market’s plunge and EU panic created a significant flight to quality in gold.  I suspect that silver’s move last week is more in line with what should have occurred in gold and gold will now need to play catch-up with silver’s decline when the stock market panic subsides.  Copper remains a strong sell.

Softs          

Coffee continues to be a strong buy.  Cocoa has topped and I expect 2700 will be tested shortly.  Cotton is a buy on dips.  OJ is a sell without enough downside potential to warrant a trade.  Sugar is a strong buy with straight calls.  Lumber remains a cycle play to 350, but at these levels is not worth trading.

Energies

The BP oil spill remains a significant supply issue for the energy markets.  Typically crude oil would experience a sell-the-news price plunge following something of this nature, however you can’t sell the news if you don’t know what the news is.  A recent example is orange juice during the extended freeze conditions in Florida back in January.  The OJ market was stuck in a rally because the market participants didn’t know how bad it would get, but when the temperatures rose and the damage was realized, the market began a strong decline.  Oil is setup similarly but the question becomes how long are we going to be in the dark about the real damage caused by this spill?  I think by now the cover up is over and there is a clear acknowledgement of a serious spill.  What remains in question is how long until they cap it so the final damage can be assessed?  Figure within a week of capping it the market begins to fall, but it could be days, weeks or even months before the spill is 100% stopped.  That being said this offers bears a great entry opportunity with bear put spreads.  Natural gas remains a long term buy and a good spread long against a short crude oil.  

Financials      

The S&P topped below 1215 as anticipated and the plunge has likely begun.  The market congestion makes this a difficult play to time as the market could chop for a bit.  The gut, however, says we see 1156 by the end of the week.  Bonds continue to be a breakout buy as the fed reiterates their stance on long term low rates and then gets backed up by the next nothing inflation numbers.  As readers of the WCR already know, the low interest rates do not mean inflation despite what some analysts believe.  Interest rate policy is used to tighten or loosen money supply – lower rates makes borrowing cheaper and theoretically makes money easier to access, while higher rates make borrowing harder and more costly.  Logic would suggest that lower rates for an extended period would put a lot of money into the economy and in turn bring inflation.  However, in this case money is actually harder to come by than three years ago – ask yourself is it easier to buy a home, get a car loan or receive a business loan than in 2007?  The simple answer is no and that means money flow is tighter despite low rates.  Until that drastically changes the Fed has the freedom to keep rates at near 0, and why would they risk hiking rates too soon and double dipping this thing when there is minimal risk of inflation?  This is also a strong bull indicator for the U.S. dollar which has been suppressed due to inflation fears.  The recent rally has been spurred by the collapse of the euro currency which I expect to not only continue but be bolstered by the recent drop in inflation fear, which is why I continue to support my forecast that:

The dollar will hit 86 before it breaks below 70 or I will stop writing the Weekend Commodities Review... forever. 

The euro remains a sell.  The Canadian dollar is a strong sell on technical confirmation below 9640.  Buy the Japanese yen down here with straight calls.  The yen is the wild wild west of currencies but has been in a coma as of late – a coma I expect it to wake up from and breakout to the upside in volatile fashion.

Grains

Soybeans have turned bearish as corn and wheat prices have stabilized.  I wouldn’t buy into any of the recent price action – grains are a strong sell on any bounce, wheat being the lone exception as a value buy between 4.50-5.00.  Bottom line is there are a lot of corn and beans planted and little to suggest this crop year will bring any supply or demand issues.  Continue to spread long bean oil against short meal.

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Meats            

I suspect cattle prices topped last week and could slide substantially in coming weeks.  Put buying is recommended.  The fakeout dip in hogs happened last week and setup a critical technical support going forward.  A failure on the June contract below 83.60 would indicate a bear move, with a bull play until that support is penetrated.

Metals

Gold didn’t quite follow through on the $50 plunge I thought was possible last week.  The monthly chart had indicated a likely fulfillment of the expansion of the lower end of the month’s range, but instead broke out to the upside and now appears bullish.  This is a critical month for gold’s technical trend as this price breakout needs immediate follow through otherwise the market turns bearish in a hurry.  The April high of 1181 should not be penetrated by more than $10 for the potential for a bear trend to develop, which suggests a short term futures play is possible at current levels.  Find out what the gold play is in this week’s Mound Trade Signals Report.

Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Softs          

Coffee turned bullish with critical support above 130 on the July contract.  Momentum and upside volatility is there and coffee should run to 142 in a very short time frame.  Cocoa remains a sell with puts.  Cotton is a buy on dips.  OJ remains a sell without enough downside potential to warrant an actual trade.  Sugar is showing a critical bull turnaround for this upcoming week and I will be issuing an official trade recommendation in this week’s Mound Trade Signals report for subscribers.