General Comments

I believe the U.S. dollar has begun the anticipated rally that will likely push commodity prices lower.  Helping things out is a bear turn in the S&P, topping out right near expected topside resistance.  Look for this dynamic duo to play out for months. 

Energies

Crude oil prices continue to slide on a strong dollar and fears of global economic weakness.  The bottom line is the winter freeze is over and the Middle East is the only thing that will prop this market from plunging to $60 or lower.  Natural gas remains a buy on a reversing supply/demand relationship that should be a theme for much of 2010.  I recommend spreading long rbob against short heating oil through February.

Financials      

The stock slide came as negative reaction to economic reports and earnings data quickly brought fear back into the market.  Remember this all started with a December jobs report that was pumped up to be the first month with no job losses in what feels like forever and ended up being a New Year’s slap in the face.  The market is capable of a straight slide to 1065 but ultimately this trend could be far more extreme.  Rising bond prices confirm this as anything but a quick dip as fear premium is coming back into bonds in a hurry.  A stronger dollar means pressure on metals, and a weak stock market means the real flight to quality is in bonds.  The dollar should continue to rally and could be capable of a move to 8050 within just a matter of weeks, and obviously I continue to standby my prediction that:

The dollar will hit 86 before it breaks below 70 or I will stop writing the Weekend Commodities Review... forever. 

The yen remains a strong buy on dips, with a strong bottom likely already set.  I am bearish the Aussie, euro, pound and Canadian.

Grains

The grain sector is looking like a sector that just got knocked down for a 10 count but it’s too dizzy from the punch to realize it has already been beat.  Supply is solid and the dollar rally means pressure on global demand for grains.  Expect continued strong selling in beans and corn in coming weeks and months.  Consider a long wheat value play against a short corn or bean trade.  Rice is bearish with a near term target of 12.60.

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Meats            

The recent meat rally appears counter logic as global beef demand is far from bullish in my opinion and input costs are likely on the decline as feed prices slide.  On a technical level front month live cattle broke outside the low of a one year tight 10 cent channel only to support and rally.  Now, while it is likely the market will be inclined to test and break the upside of that channel, my gut says start scaling into some short cattle positions with straight puts long term as opposed to futures.  Hogs have been on a serious run since setting a swine flu low; a run I feel has finished its course.  Look at a short futures trade in hogs with a stop on the April contract at 75.90.

Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Metals        

Gold did a great job of filling what I suspect is the high side of a monthly bar for January and beginning a slide down that could have it sitting at 1050 or lower by the end of the week.  Silver appears to be holding out and I expect significant downside this week if gold hits my target.  Copper is holding on for dear life but let’s face it – weaker outlooks for global growth and a growing fear that China will put the reigns on its over-the-top growth rate has this market looking at the other side of 2.80.

Softs          

Coffee is turning into quite the technical market both on long term and short term outlooks.  Simply there is a congestion buildup that will likely see 1.50 coffee prices very, very soon – and after that there is not too much resistance above that mark.  However, before that breakout rally expect a little shakeout that could test 132-135.  I wouldn’t wait for the extra few point downside potential, but rather buy some bull call spreads and straight calls now ahead of the move.  Cocoa remains a bear play on declining global demand and an improving supply outlook.  Cotton is a buy on dips.  OJ damage from the frost in Florida cannot be fully factored in but needless to say the market has stayed almost rangebound despite a load of bullish news.  Bottom line here is that the market is likely to hold below 160 and is a sell with puts.  Sugar is not done with the short squeeze and panic rally but a 200-300 point dip is not out of the question in the near term.  Lumber continues to be a buy on dips.