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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
August 24th,
2008
Energies
What does a 9.4 million barrel supply increase in a week
do to prices? Apparently not much when
it is all said and done. The market is
on a psychological rollercoaster, torn between Russia and Georgia geopolitical issues, a choppy dollar and a rising supply
situation. This market has become
dollar dependant. It may appear at
times that the oil market pushes the dollar, but with the dollar in the
breakout position it is forcing oil’s hand and pushing oil lower. With a good shot at hitting 80 by the end
of September, the dollar should push oil into the mid-90s. Keep an eye on the weather as there are
some impressive conditions off the coast of Africa that
could hurl a storm our way, but otherwise this market sector is heading
south.
Financials
Continued choppiness mixed with intraday volatility has
the stock market building a nice and wide consolidation pennant on an
intermediate term daily chart. Look
for a little more choppiness even through Tuesday’s FOMC minutes and then a
September market failure. Bonds are
getting some significant foreign buying amid a rising U.S. dollar but should
see price resistance under 119 and selling OTM calls is recommended. The dollar fell hard off a short term
pennant on Thursday only to rebound nicely on Friday. This market is setting up another move
higher, perhaps to 80 or above, by the end of September. The euro, pound and Canadian dollar remain
sells, with a weak yen likely in the cards as well.
Grains
This choppy sector remains a
stand aside place for me as the trend is no longer apparent and the market is
not overly convincing with its rally attempts. Corn harvest numbers look solid and the
supply is likely to be the second highest on record, suggesting the flooding
and late planting is not worthy of the preceding panic. Overall the grain market is susceptible to
another dollar rally, but in general appears to be setting up a consolidation
pattern which suggests that there are some premium collection opportunities
in the short term for those that can handle that type of exposure.
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Meats
Cattle prices remain choppy amid a grain rally, which
does not bode well for the bulls. This
market is setting up for a fall but may consolidate ahead of grain
harvest. Cattle has
a long history of setting up breakout patterns but going nowhere. Hogs remain a sell.
Metals
Gold and silver chopped off of their respective lows as
the dollar pulled back a bit. The
metals sector as a whole, but specifically gold and silver, are
hypersensitive to the dollar. For the
past couple of years this inverse correlation lacked a day to day connection,
but held the overall trend as the dollar fell from 120 to 70. As the dollar comes out of its bottom
congestion area between 70 and 74.50, gold and silver traders are more aware
of this relationship as gold is priced globally in U.S. dollars. Foreign investment in
these metals have been an overwhelming reason for their sustained
rallies. As global recession hits and
the dollar rebounds the metals are left with nowhere to go but down. Sell the bounces.
Softs
Cocoa
is seeing rising demand at the ports but remains a sell as the top appears to
be in. Next week will be crucial in
determining if the momentum has returned to the bulls or not. Look for a break and close below 2650 to
signal the market’s true trend weakness.
Coffee remains a solid long term buy and this past week’s run higher
was met with little selling on Friday’s dollar rally and oil selloff. This
means the market is rallying independently and has an excellent chance at
running another 10 points in short order.
Sugar is holding its own and diverging from its correlation to corn,
which is a change of pace. This market
may in fact make a serious rally but I would buy under priced puts and play contrarian here.
Cotton remains a value buy as West Texas
harvest may not be all the crop everyone expects it
to be. OJ is riding a nice technical
bottom and is a value buy. Private
forecasts peg a significant drop in Florida
production for the upcoming crop.
**Chart courtesy of Gecko Software's TracknTrade
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