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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
August 17th,
2008
Energies
This week the market congested despite a massive assault
on Georgia from neighboring Russia. A cease fire in place
over the weekend sets up a market collapse, especially if Russia pulls out and hurricane activity lays low in the
Gulf. As mentioned last week, support
at $105, $100 and $92 respectively on crude are less likely to be price
supports than they are targets. Short
the energies across the board on bounces, with puts of course.
Financials
The stock market remains choppy and volatile as the
market inches higher amid a strengthening dollar and troubles abroad. This market is setting up a big fall, but
is likely to rally for a little bit before it gives way to some serious
downside volatility. Do not get caught
with short put plays here as the volatility spike could wipe you out. Bonds continue to make a nice bull run
despite a lack of fundamental logic behind the move. Foreign money is certainly helping to push
it higher as global investors put their money back into U.S. dollars. This trend occurred not too long ago, and
it sustained a rally in bonds that was historical. I am not convinced this is a long term
trend this time around and would sell calls into the rally expecting
resistance under 119. The dollar
continues to fly high as expected and should see some pressure at 78, but
ultimately this market is heading for my forecast of 80 before stalling for a
bit ahead of the next wave of economic failures abroad. The Canadian is stalling on its recent
plunge, but more downside is ahead.
The pound and euro remain shorts but are near my short term targets.
Grains
So if all you shorts out there
took last week’s advice and grabbed your money to sit on the sidelines then
good for you. This market came off the
bottom in a hurry and is in no man’s land now. Another stab at the lows may come, but
there is too much upside risk to take a shot at it here. Wait another week, but don’t get caught in
what could be a bull trap. Bottom line
is this market sector is no longer trending and there are better commodities
patterns in other sectors to find opportunity. Too often grain traders get stuck trading
grains when there are definitely times they shouldn’t be. This is one of them.
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Meats
The pop in grains did little to surge cattle prices as
ultimately this market is at a topping point.
Bear put spreads or straight put plays 10% out from the market are
recommended. Hogs are still a short.
Metals
A big follow through broke silver this week as the market
collapsed amid a rising dollar and falling gold market. These markets are still susceptible to
further downside, both short term and long term. Take advantage of the recent pop in
volatility to scale down on puts, but keep a few plays going to grab what
could be another $80 down in gold as crude oil takes another plunge and the
dollar makes a run at 80. The platinum
collapse is nothing to be surprised about – this market ran up on a short
term supply issue and a v-shaped reversal was in order. Look for a leveling off at 1200.
Softs
Coffee remained choppy as a
strong dollar and solid supplies from Brazil
holds the market back in the near term.
Coffee is still a great long term bull play. Cocoa
is tumbling below support and has a clear path to the 2200 area. Cotton crop data may have forced a
pullback, but the lowest stocks-to-use ratio in 5 years is a good indicator
that the market is susceptible to a spike rally in coming months. Get long in a hurry on this recent dip. OJ is setting up a bottom and using Fay as
an excuse. Get long and forget about
the weather. Sugar is below 1300
support and has little logic to its moves as it fades corn despite being
fundamentally tied to it. With oil and
corn falling sugar should be in the dog house, but it seems to be fighting
the good fight – maybe there is more to this market than I am giving it
credit for – wait and see on this one.
**Chart courtesy of Gecko Software's TracknTrade
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