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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
June 15th,
2008
Energies
A choppy week of consolidation in energies focused on
inventory numbers and a lack of continuation from the Israeli comments about Iran’s nuclear ambitions.
The energy report showed yet another shocking draw for crude but a
build for distillates and gasoline (the focal point of the inventory reports
for weeks to come). Technically oil is
forming a wedge near the highs and expanding in intraday price volatility –
for good reason. A market failure
could offer catastrophic daily price moves that would ruin countless funds
and speculators. Can the bull train
pull out of the station and make its way to $150 or higher? Time will tell but long term put plays are
still the right trade at these levels.
Natural gas has gotten way out of control. These levels are Katrina-like prices and a good
place for long condors.
Financials
Stocks rallied strong from fresh near term lows but lack
the fundamental setup to rally substantially off of these levels. Sell bounces. Bonds may have set some fresh lows but will
be tempered by a failing stock market.
This market looks like its in a downtrending
channel and could be played accordingly with a 2-3 basis point futures swing
trade or a leg in strategy for a short strangle. The dollar broke key resistance at 74 but
needs some quick follow-through to maintain any type of momentum. This market does not have me convinced but
I remain a dollar bull with long term calls and a bearish outlook on European
currencies. The yen plunge could be
bought but be weary of the dollar taking over the currency sector and killing
any technical support that may exist in the Yen. The Canadian dollar is right on key support
above 8675 and could collapse on a close below that mark.
Grains
Lock limit up in the grains shutdown a lot of traders. The floor was in shambles in the aftermath
and a lot of firms took a beating – a great example of why you should look at
options over futures during market extremes.
These markets have quite simply broken out. Look for a limit increase to signal a top,
but otherwise stand clear or join the bulls for the short term ride. Rice remains a sell with puts.
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Meats
Rising grain prices are pushing
cattle through the roof. Hogs are
turning off of topside resistance and remain bearish with a 15% retracement expected as this market lacks the
fundamentals to breakthrough the top or the bottom of this long term
range. Play bear put spreads in hogs
and cattle out to Feb of ’09.
**Chart courtesy of Gecko Software's TracknTrade
Metals
The yen plunge is helping to fuel
the metals selloff, and the dollar’s recent breakout
may help gold test 850. The bottom
line is metals have a ways to fall but haven’t broken just yet. Be patient and wait for the break below 850
in gold and maintain some long term gold puts. Take a look at some Dec. silver $12 puts or
something along those lines for a volatility premium spike. Copper’s fall from its $4 test is a good
sign of a pending market failure. China
demand could wane through the rest of the year and put pressure on copper to head
to the 250 area.
Softs
Coffee’s intense trading between
128 and 143 is extreme to say the least.
How many markets have you seen that have 400-500 point daily moves but
stay inside a 1500 point range for the better part of three months? The implied volatility is rising and showing
signs of a major breakout. Brazilian
harvest, frost season and a slew of other hanging issues read to me like a
script for a breakout and run to 170.
The market tendency has been to fakeout the bulls
so buy a dip to 124 but keep a core long with bull call spreads at current levels.
Cocoa
took a couple of stabs at 3000 and may breakthrough, but reversal is written all
over this market at this price extreme.
Put buying is recommended over multiple time frames. Cotton is catching a strong bid on extreme
crop issues in West Texas and the lack of acreage
suggests a major cotton rally may just be underway. Sugar caught a big rally
on India
shortfalls and Brazilian bug problems.
Could sugar’s extreme oversupply finally be in for a turn? The market should see a run to 12 in short
order if this rally is in fact for real.
OJ’s pivot off key 50% price retracement has summer rally written all over it. Bull call spreads and straight call plays
are recommended.
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