General Comments

Last week offered a glimpse of just how devastating a dollar rally would be to commodity prices, melting nearly every sector on what I would consider a minor dollar push given my expectations going forward.  I think the second critical observation from last week’s moves is that this recent euro push well below 140 is a psyche-changer for many investors out there that expected the dollar rally to be short-lived, and this type of psychological switch-a-roo can cause drastic near term volatility as traders large and small adjust positions in a panic, thereby causing stop triggering price action.

Energies

Crude oil continues to hover - and for good reason.  There are obvious negative forces that should have oil collapsing, such as a strong dollar and concerns over global growth forecasts in 2010.  However, you can’t fight the weather and in this case the weather is clearly holding the market up.  I have discussed in the past the concept behind winter weather and the general lack of understanding the market as a whole has about this.  A big winter snow storm in the northeast is not what typically moves winter supplies; in fact one could argue that a near term shutdown of basic transportation due to inclement weather has a bearish affect on supplies.  The real deal for winter weather bullishness occurs when sustained cold weather increases household demand for heating while not hindering travel and that is what is going on all month long throughout the U.S.  Even more concerning is that this is going on in Asia and Europe too – talk about your global warming double take (I shouldn’t joke about it because this is actually more of a sign of global warming than a warm winter; by experiencing weather extremes we are reinforcing the argument for the instability of our climate system and suggesting a decade wrought with weather shocks).  Simply this weather can have a delayed but long term affect on supplies, especially in distillates.  The move towards a panicked supply of heating oil now will likely cause a delay in production ahead of the summer driving season for rbob, thus causing more of an unavoidable supply shortage for gasoline come summer.  Well, buy the rumor sell the fact.  The fact is everyone is now aware of the heating oil push so short it and buy rbob ahead of the panic there.  Overall it’s a great time to play energy volatility.  To me crude oil, heating oil and rbob are all being supported by weather that come end of February will likely subside, which allows for a short some time in the next few weeks after a possible half-hearted rally puts crude oil around $76.  Natural gas continues to be a buy on dips for a 2010 breakout rally to 8.50 or 9.

Financials      

Stocks slid thru critical support in the 1080 area, which was prior resistance during the recent breakout.  1067 remains critical support as well and the 1066.50 support on Friday is cause for concern if not penetrated immediately.  That being said, this market appears ready for the impressive collapse I anticipated in 2010, and it doesn’t seem to want to waste any time.  Continue to short the bounces and buy straight puts to benefit from increasing downside volatility.  The dollar heading to 8050 within a few weeks seemed like a fairly bold prediction for me last week, but I guess I was wrong – it looks like a couple of weeks instead of a few weeks!  This move is just the beginning in my opinion, and 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 remain bearish the Aussie, euro, pound and Canadian.  The Aussie broke through key support and could collapse 300 points or more in the next two weeks if the stop triggering plunge I anticipate kicks up a notch.

Grains

Grains started their respective slides with some heavy pressure last week as the dollar surged.  So the question comes where is the support and unfortunately I just don’t see much anywhere near here.  $2.80 corn is not out of the question if plantings appear strong.  Beans could see $7.50.  Wheat is the only one that I feel will holdup near its current price, which is why I continue to recommend buying wheat against a short corn or bean.  Rice bounced late last week, but I see this as a great entry for a put play.  The triple time frame chart below illustrates the multiple support tests rice sits on, but there is room for a good 150 point plunge before true support is tested, and I believe this is more of a congestion ahead of a breakdown than a support being held.  And for the never mentioned and hardly traded market of the month we have….canola.  This completely avoidable market is giving me a strong sell signal and has all the signs of a market about to drop big time on a technical break below 350. 

Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

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Meats            

While I am not completely sold on last week’s cattle selloff, the short term technicals are not nearly as important as the fundamental breakdown that will occur when global demand slides and feed input costs drop on the anticipated grain selloff.  Hogs are at a critical juncture as 65.50 on the April contract - and that is all the technical inputs I need for a forecast.  Short term I recommend a swing trade by buying it here with a double reversal stop at 64.40, suggesting a clear break below key support and a bearish outlook for weeks or months to come.  If the upside holds target 68.40.  If stopped into the downside reversal play then place protective stop at 69.30.  I know I rarely give specific trade recs in this report, and if you want follow up on this trade or more trades like this then I recommend getting my premium trade rec service www.moundtradesignals.com – it’s my ultimate outlet for communicating my actual trade recommendations in a clear and concise format.

Metals        

The dollar is certainly impacting gold and silver as this currency trend shift is likely to have a mega-impact on this sector.  I think we have just begun!  Consider a covered OTM synthetic short in gold (sell a call spread to pay for a straight put).  Copper remains a strong short on bounces.

Softs          

Coffee’s plunge shows that it is susceptible to dollar strength, but in this case it is just a massive buying opportunity in my opinion, as supply concerns will be paramount in 2010 and push the dollar issue to the sidelines.  Cocoa has begun the overdue crash I have been calling for – 1500 here we come!  Sugar got its support test out of the way and 35 seems like an amazing but likely run.  Cotton is a buy on the dips here as it is playing in sympathy to grains selling off, but has its own reason to rally in 2010.  OJ is finished in my opinion – sell the bounces with puts heading to 110.  Lumber remains a buy.