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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
April 20th,
2008
Energies
The
energy sector continues to fly to historic highs as disruptions in Mexican
and U.S. oil
supplies helped to create a shocker of an inventory report. The market mentality is clearly along the
lines of how high can we run this thing, which almost always ends in an epic
reversal with significant downside volatility. To me it is not if but when,
and when in terms of days or weeks not months or years. Natural has developed a strong bull
formation after congesting near a recent breakout high. This market is deserving of some
pre-hurricane seasonal buying, but it appears this is more of a ride along
with the sector that is about to take a severe correction straight in the
jaw.
Financials
The S&P continued to chop, showing technical buying
despite bearish news from Merrill.
This market is not bullish despite a strong daily chart. The longer term view shows significant down
trending left, but a choppy market in the near term. This should also cause some choppiness in
bonds which tested the lower end of its recent range in an effort to form a
bit of a technical top. This market
still appears range bound to me and should be bought on further dips to play
a bounce back to 119 or higher.
The dollar was all over the map
this week and appeared to be heeding the words of the G7 meeting last weekend
with a Sunday night plunge in the euro.
However, the rebound and ensuing rally pushed the euro to fresh all
time highs. Thursday’s inside day
setup a strong selloff on Friday. If a market sets a fresh all time high and
has no follow through there might be a real turn coming very shortly. The yen has begun to top but remains a
currency to avoid. The Canadian dollar
is in a congestion pattern with a likely break to fresh lows coming, but I
recommend waiting for technical confirmation before jumping in.
**Chart courtesy of Gecko Software's TracknTrade
Grains
Three very different chart patterns are emerging out of the grains sector
as beans congest in a wide pennant while wheat is ugly and corn is riding one
serious bull trend line. The bottom
line is that wheat’s failure will likely end this bull run throughout the
sector IF we have some good weather through the end of May. The logic is that wheat supported this run
up on several levels: global export restrictions, supply shortages and
planting concerns. Now we get an end
to wheat extremes and it brings a wave of relief to bean and corn
prices. Rice is standing on its own
with low volume limit action like nothing this market has ever seen
before. I called for a bull market but
this is just hysteria now.
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Meats
Slaughter rates in the U.S.
& Canada
are strong which will net out to support prices in the future, however the
lag affect on supply will not show this for some time, leaving the market
open to strong selling pressure in coming weeks and months.
Hogs have run up to test the upper side of a wide
long term range, offering a potential short as this market is not breaking
out to anywhere any time soon.
Metals
Gold’s inability to run back to
highs despite new highs in oil and the euro suggests the top is in for the
metals sector. This overbought market
has not seen its true retracement yet and short
plays are recommended in both gold and silver. Copper is catching some support on strikes
in Chile,
reminiscent of the original strike that lasted far longer anyone had
previously thought possible. If the
strike ends quickly then expect a sharp selloff in
copper, making puts a worthwhile play given the potential for some serious volatility.
Softs
Coffee
took the recent volatility and turned into a strong run to fresh highs before
seeing some selling pressure come in.
The market remains bullish. Cocoa
continued to surge higher on significant short covering, only to get hammered
on Friday’s U.S. dollar rally. Cocoa
could easily see a secondary top form early next week and puts are highly
recommended. Cotton has been all over
the map and is good for some long term bull call spreads but otherwise
avoidable. OJ is on the rise after
falling to almost exactly the 50% level from the highs. Different from a Fibonacci 50% retracement, OJ topped at 210 and has pulled all the way
back to 105 only to find strong support on two occasions. The second support came in higher around
110 and suggests a real bottoming formation ahead of critical hurricane
season. Go long with puts as
protection. Sugar is choppy and not
holding up during a major oil run, so look to play puts on a rally day as I
suspect little bull runs will be sold into heavily.
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