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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
September 21st,
2008
Energies
Crude oil support above 88 held and pushed momentum to
the bulls as energies appear oversold.
Moreover, the dollar rally is likely limited in the intermediate term. The energy sector remains susceptible to
hurricanes and supply issues and I expect to see some choppy action
ultimately push the sector about 10% higher before ultimately failing once
again. Natural gas remains a relative value
play ahead of winter demand.
Financials
The big government bailout is likely to see follow
through this week as Congress puts forth the nearly $1 trillion
anti-capitalism ‘make the pain go away’ program. The stock market should see continued volatility
and price expansion with a bullish view.
Bonds have likely topped with the Fed’s don’t bend so we’ll break
policy newly instituted at Tuesday’s meeting.
Sell the bounces. The dollar is
stuck in what should amount to a congestion pattern between now and year’s
end. This sets
up short strangle premium collection opportunities throughout much of the
currency sector, focusing on wide first or even second standard deviation
strategies with 3 month time frames.
The yen is on the way down and is worthy of inexpensive short term put
plays.
Grains
A choppy and volatile grain
sector has been hypersensitive to commodity fund shifts but is approaching a
period of congestion in the dollar and oil that sets up a non-correlated
rally due to harvest time issues. The
rate of maturity in corn and beans is nothing short of scary and could become
a major issue in coming weeks. At this
point the limited amount of corn in and past the dent stage suggests
vulnerability to frost despite the late planting offering a more rapid ascent
to crop maturity. This means if a cold
weather front hits in the next 3 weeks a catastrophic crop failure is
possible. Bull call spreads in corn
for December are recommended. Do not
buy into the rice rally as this market has seen its highs and is likely to
fail in coming months, making inexpensive puts a solid play in this thin
market.
**Chart
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Meats
I continue to see a bullish turn
in cattle and hogs at these levels, which will probably be supported by
rising grain prices in coming weeks.
This is counter to my long term views, especially in cattle, but
allows for a short to intermediate term rally in meats to fill a rounding top
and an ultimate market failure to begin in late November or early December.
Metals
I suppose when I said the gold and silver markets were value
buys last week I did not foresee the massive spike in prices that ensued during
this week of commodity chaos. Exchange
increases in overnight margins for metals are likely to end this rally before
it can really get some legs under it, however the volatility
is far beyond anything that offers legitimate opportunity. The option prices are
through the roof on both the put and call sides and offers premium
collection opportunities through naked selling and ratio credit spreads for
those with deep pockets to handle the volatility.
Softs
Cocoa
caught a strong bid on the commodity rally mid-week but overall has little ‘oomph’
left to it and should see some strong selling this week to confirm the
bearish bias that I have maintained.
Buy puts on this recent pop.
Coffee is getting beat up as supply is strong and global demand is
perceived to be diminishing. This
remains a long term buy with bull call spreads, and a short term buy via
futures with put protection. Cotton
has taken a substantial hit on the chin as grain prices have congested, but
continues to be a big blinking light on my radar screen for a long term buy
at these value levels. OJ is in a
severe downtrend as weather issues have skirted Florida
and inventory levels are at historic highs.
I remain contrarian here and recommend
buying the dips. Sugar is avoidable
until it tests support levels, otherwise I am a call
seller on volatile up days.
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