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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
November 2nd,
2008
The bull turn began last week and a critical rally in the
euro on Monday should setup a big rally for the next two weeks. The election could create some interesting
action but will likely not have a trend like effect on the markets in the
near term.
Energies
Lower than anticipated inventories has
likely begun a shift in the trend in energies. Remember not only do we have OPEC cutting
supplies but we also have a late start to winter which means a cold front
could cause a spike in winter demand and turn this sector bullish in a
hurry. Near term target for crude oil
is $82. There is a bit of a call skew
coming back into the market as specs and shorts begin to play calls over
various time frames. This means
straight call plays may not be the best value approach, although a strong
rally makes it worthwhile. Look
instead to a long calendar spread or bull spread for a solid bull option
play.
Financials
The bottom did appear to be set last
week as expected and this market momentum could carry the S&P to run up
through resistance and break 1100 before month’s end. Even though it is contrary to historic
analyst opinion, that same volatility that tore this market down could very
easily rally it back – even if only part of the way. Bonds gave back huge gains
last week as stocks supported and is not the most tradable market at
present. Look instead to spread trade
long the 30yr. bond against a short nearer term maturity. The dollar, in my humble opinion, has
topped in the near term. Despite
accelerating its rally efforts beyond my targets this market has gone way too
far too fast and is due to correct to the 82-84 area. This means a strong euro rally. However, Thursday’s island key reversal
pattern on a daily chart in the euro needs the market to support immediately
to avoid turning ugly. Therefore look
for a strong rally in the euro and pound on Monday and through the beginning
of the week. The Canadian and Aussie dollars both caught a spike rally early
this week as expected, but the bounce is likely to continue further this
week.
Grains
A relative bottom is being setup
in grains following a revision to the acreage numbers, which showed a 1-2%
drop in acreage across the board. This
will only gather some momentum if a general commodities rally ensues this
month, which I suspect it will. Bull
plays in wheat, beans and corn are recommended.
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Meats
Cattle appears to have turned a corner as grains offered some price
support this week. Look for a strong
meat rally in coming weeks. Hogs,
which are down nearly 30% since mid-August, are primed to rally as well.
Metals
Gold and silver bottomed out on Tuesday and look strong,
however all these market sectors are dependant on the U.S. dollar pulling
back in order for these supports to hold.
This week is about as critical as they get in determining the
intermediate trend, so all eyes on the dollar. Copper and platinum should support as well.
Softs
Ghana
is forecasting a 3% rise in cocoa production, a good sign that the cycle
shift is on in cocoa and lower prices are on the horizon. Coffee remains a screaming buy, having
suffered from this commodity wide plunge despite supportive
fundamentals. Rumors of a strong Vietnam
harvest this month may be grossly over exaggerated and the country is exposed
to heavy rains that are disrupting harvest. Cotton is getting beat up but remains a
value buy at these levels with straight calls and futures with put
protection. Sugar is likely to ride a
corn and oil rally in coming weeks, offering a spike in call premiums. Lumber is a strong value buy with long term
calls. OJ is congesting but at this
point this market has retraced from 210 to the high 70s and has had little to
no dead cat bounce effect during the selloff. This market is overdue for a strong spike
rally and calls are the way to go.
**Chart courtesy of Gecko Software's TracknTrade
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