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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
June 1st,
2008
Energies
Momentum
appears to have turned in energies this week following a massive drop in
Friday’s Memorial Day gasoline demand.
The full weekend demand will hit the wires with this week’s report,
but the market is looking for supply news to turn the market. The energy report showing unbelievable supply
draw downs seemed to do little to support the market which shook off the news
with continued selling. So is it the
typical one step back and two (sometimes 3 or 4) steps forward for oil or this
the turn? If summer driving demand is
slowed from consumer resistance to high prices the supply turn could be in
full effect and the market will see a major pullback, hurricanes
withstanding. Paper came into the ring
on Friday for 10,000 Dec. 80 strike puts in crude, a more than $5mil play,
pumping put premiums up and setting the stage for volatility expansion in the
weeks ahead.
Financials
Stocks got a bounce on strong
economic data as the market seeks out signs of growth without inflation. The market is at a critical point,
technically speaking, as a break below 1380 is needed to reignite downside
momentum. Look for a summer selloff to continue what it started a couple of weeks
ago. Bonds broke
through key support and has technically turned bearish. However, look for a quick bounce back into
the 116 area to suggest a slow downtrending channel
as opposed to the straight technical breakdown that the current daily chart
suggests. The dollar is catching a bid
once again and should take another shot at 74, breaking through relatively
easily and making a serious run at 78 by September. This means an 800 point slide for the euro,
a big breakdown for the pound and a possible collapse of the Canadian dollar
if we see a break below 9675.
Grains
Africa’s largest corn producer, South
Africa, came in with some strong numbers
due to favorable weather helping yields.
This may be the first in a series of good fundamentals that further
the grains’ price drop well into the summer months. Weather is always an issue for grains, and
corn emergence in the U.S.
is the current focus. The reality is
that the overwhelming influence on the grain sector is crude oil and the U.S.
dollar. A strong dollar combined with
a top in crude oil means a grain collapse for the ages, something that will
have increasing likelihood with any type of follow through this week. Rice is getting pounded as export bans are
lifted amid improving supply.
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Meats
Monthly slaughter numbers are showing the big picture –
oversupply. Commercial red meat
production was up 16%, beef production was up 12% and pork production up 18%
year-over-year. This could be the
beginning of the end here. Puts are
recommended across the board.
Metals
Gold broke this week amid falling crude prices and a
rising dollar. This is a critical week
to see gold test and break 850 and silver to follow suit. Momentum is key
for the market to breakout of this wide range between 940 and 850 and to see
another leg down for the metals sector.
Bear put spreads in gold are recommended. Copper is clearly breaking after failing
once again to establish substantial new highs.
**Chart courtesy of Gecko Software's TracknTrade
Softs
Coffee is choppy and remains range
bound, with key support at 128 and resistance at 140. Look for an unexpected breakout rally to
ensue this week and for the market to see 150 by month’s end. Cocoa
is choppy as well with random news of bug issues reigning over Ivory
Coast, but the big picture remains bearish
at these price levels. Look for a pop
in put premiums this week and a good play on Dec. 20 puts. Cotton is beat up and left for dead despite
record low acreage and a pending shortage ahead. Buy the dip and take advantage of the market’s
rapid slide from 90 to 65, a near 30% collapse in under 2 months. OJ is breaking 105 key support
but remains a buy until a thorough close below 100. Sugar is also getting beaten to a pulp as
it tests the lower limits amid huge surpluses and a possible oil
collapse. Buy the market at 960 with
stops at 888 for a long term bull play.
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