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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
November 16th,
2008
Choppy and volatile trade wreaks havoc on trend traders,
but will setup a price expansion in most major market sectors over the next
two weeks. Cover short option premium
strategies and take advantage of Monday’s possible dip in prices for a great
entry into near term long plays.
Energies
As crude breaks through $60 the
market wonders where is the bottom? Inventory shifts, OPEC cuts, winter demand
and a rise in travel should turn energies bullish. However this sector has a history of price
trailing fundamental shifts and remains exposed to stock market selling.
**Chart courtesy of Gecko Software's TracknTrade
Financials
Stock market weakness persisted
and a fresh near term low was set intraday before ultimately setting a record
for an intraday price reversal with Thursday’s rally. That momentum was partially diminished by a
give back of more than 50% of Thursday’s impressive rally. The first half of the week will likely
determine the trend for much of the rest of 2008 as a rally through
Thursday’s high will ignite a significant price breakout.
Bonds remain range bound as a weak stock market pushed
this market near its upper range.
Expect a pullback on a stock market rally and continue to leg into
premium collection strategies here.
The dollar is choppy and building a congestion pattern for
a breakdown this week. Either way
price expansion in currencies is about to get reignited. The euro has a nice supportive technical
pattern that needs some strength off of a likely Monday morning pullback to
stay bullish, otherwise 1.2326 is critical support. The Canadian does appear to have had its
rally efforts stalled, and I remain a long term bear. However, I would recommend waiting for
fresh lows before reentering short.
Grains
Grains remain in a congestion
pattern dependant on its industry wide correlation to determine its next
price trend. However, there may be
some divergence from this correlation in coming weeks as harvest numbers
combine with critical demand information from China
to create a potential rally in this sector.
If hedge funds do not jump in over the next few weeks this market
sector may get caught in a winter downtrend – it’s now or never so to
speak. China
bought a lot of beans from local farmers who couldn’t unload the stuff. Keep an eye on this for indicators of China’s
potential demand for grains in the near future.
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Meats
Cattle 2008 production numbers were a little under last
month’s numbers and could be a sign of shifting supplies, but is likely
insignificant to the near term trend.
Hogs also saw a drop in production due to reduced slaughter this
quarter. This should help to turn the
tide in hogs and make this market go on a bull run through year end.
Metals
The metals sector experienced some strength amid a stock
market selloff on Friday, but needs dollar weakness
to ultimately turn the trend bullish.
Gold breaking 770 will signal a technical breakout and bull move ahead
for the entire sector.
Softs
A drop in mold-infested cocoa
from Ivory Coast
hitting the export market could help to bring prices lower in coming
weeks. Coffee remains a strong value
buy down at these levels. Sugar
production in India
is dropping considerably and a forecast for a possible sugar shortfall could
turn this market bullish in a hurry.
Remember, however, that this was a market with historic carryover
inventory for two years and has a lot of sugar to run through before there is
any type of global shortage. Cotton
prices remain unbelievably low considering the reduced U.S.
production and general trend away from cotton planted acreage. OJ is congesting near 80 and could explode
higher off these prices in the short term.
Buy some Jan. calls near the money and play the spike. Lumber remains a cycle value buy at these
levels.
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