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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
October 26th,
2008
A big bull week for commodities is likely upon us – jump
on it early on Monday and watch the dollar retrace this upcoming week to
offer some great upside volatility across the board.
Energies
Oil prices continued its mass fund liquidation, seeing
prices tumble as the dollar marched higher.
Prices continued to fall despite a massive 1.5 million barrel supply
cut by OPEC, illustrating the sector’s exposure to the rise in the U.S.
dollar. A turn in the dollar, expected
this week, should spike oil prices and there is an opportunity to grab a $20
move with some bull call spreads or straight deep out of the money
calls. Natural gas is nasty right now
and I would tread lightly getting into that market. Focus on oil and rbob.
Financials
It is a scary time in the stock
market right now but the gut says its over to the downside and a big rally
will take place next week. Sell OTM
near term put premium and buy some calls.
Bonds are all over the map but should retrace some of this week’s move
next week, indicated by the strong tail set by Friday’s spike high on the
limit down move in the S&P in the AM.
The dollar is on a much more vertical ride than even I, the seemingly
lone dollar bull this year, could have anticipated. I expect a strong retracement
next week and to see the dollar index back in the 82 area come year end. The
euro and pound are buys but expect strong price spikes in the Aussie dollar
and Canadian dollar despite their long term bearish outlooks. Short term these two currencies have fallen
way too far too fast and this week ahead should be a bounce back week for
them.
**Chart courtesy of Gecko Software's TracknTrade
Grains
Strong selling in grains made me do a double take on some of the pricing going on right now
- $8 beans, $5 wheat and $3 corn makes you want to look back at when these
markets really broke and it has just been a short month or so of selling to
see these epic price highs crumble.
This is an important week for the grain sector to establish a V-shaped
bottom and take off, otherwise this could be a
congestion winter ahead. I expect a
strong rally across the board but look for this upcoming week as an
indicator.
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Metals
So much for a flight to quality in gold as the plunge on
the dollar rally continued. Look for a
reversal this next week and an unexpected historic price spike in
metals. When I say historic I mean
this volatility and chart pattern screams $100 up day in gold and lock limit
in silver. With that kind of potential
upside volatility take some deep out of the money intermediate term straight
call plays for the next couple of weeks to play the volatility spike. Copper is sub-$2 and is reminding traders
of where we were pre-metals run. Short
term price spike aside this market is heading to 120.
Softs
Cocoa
broke 2000 as expected but more downside in the short term is unlikely as a
strike and crop issues remain in the Ivory
Coast.
Expect some congestion and a bounce back to 2300 before ultimately
breaking to 1500 by March. Coffee is
taking the fall with the rest of the industry but is an incredible value
buy. OJ is also due for a correction
to 105 or higher. Cotton is all over
the map with heavy one sided volatile one day swings with relatively little
meaning behind them. Buy the dips at
this value level. Sugar is avoidable
and lumber is a long term buy and hold.
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