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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
February 3rd,
2008
Energies
Energies offered a fairly technical trade this week as
the market attempted to rally after a 15% retracement
from the highs. These
seems like a clear dead cat bounce with a selloff
eminent and a Friday plunge offered some great confirmation. A break and close below $85 and this market
could see a move down to $63 on a Fib. retracement
fairly quickly. Heating oil remains a
sell and a great short against a long rbob. Natural gas hit resistance below 8.50 and
turned bearish by the end of the week.
This market may stuck between 7.00 and 8.50
for a bit.
Financials
Stocks got a strong boost from the 50 basis point cut by
the Fed, but the inside language on the Fed cut implies the potential for a
more stable interest rate environment moving forward. I expect a strong U.S. dollar, weak stock
market and choppy bond market to become the norm for the next several weeks,
if not longer. Bonds are pulling back
on fear that they overshot the outlook for the Fed cuts moving forward, but
the bottom line is that 118 or so is about right until the Fed gives a little
more insight. Fade any attempt at fresh highs and be a buyer around 115-20. The dollar got a good looking reversal on
Friday and should see some strength this week as the focus turns to Europe’s
interest rate policy. Short the euro,
Canadian dollar, pound and yen.
**Chart courtesy of Gecko Software's TracknTrade
Grains
Soybeans are stuck between bullish South American weather
and funds running for the exits. Pitch
me bull arguments for the grain markets all you want but history tells us $13
for beans is a place to be short. The
same goes for $10 wheat and $5 corn.
Get into some intermediate to long term put plays and let the market
shake itself out of this run – even if they take another stab at it come
July.
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Meats
The cattle numbers from the USDA
said that there were 96.669 million head of cattle and calves in U.S. inventory (as of 1/1/08). This is down
.3% from a year ago and in line with estimates. The market remains bearish
while hogs continue to be a buy at these levels despite being just under some
technical resistance.
Metals
If you woke on Friday you saw gold at fresh contract
highs, took a mid-day nap and the next thing you know the market fell out of
bed along with you. Gold and silver’s
reversal patterns on Friday offer a great technical turn for two markets that
were way overbought. Sell into any
Monday bounce and get short ahead of a U.S. dollar rally and oil meltdown.
Softs
Coffee is catching a solid bid
on short covering and fund interest this week, with bull breakout written all
over it. A word of caution, however,
as when markets like coffee get up and go it normally gives you the feeling
that you are chasing the market with no great value entry point. That isn’t the case right now, but that
doesn’t mean it that it will fizzle out on this run. I would look for gap openings to the upside
as a good confirmation that this market is about to begin its historical run
to $2.
Cocoa is at fresh contract highs and about to go for the gold
run to 2500 as dry weather in West
Africa along with desert winds
are placing stress on the crops. This is a short covering run that could go
for some time, but play it with calls instead of futures because this market
will have some wild swings.
Cotton volatility died down a
bit this past week as it digests some serious recent price action. Don’t be fooled as the market is going to
get violent once again. Buy some long
strangles and play the volatility, or take advantage of the dip and start
scaling into some long term calls.
OJ is on the move with market that
shook off some bearish weather news setting up a bull run. Get long calls.
Sugar is not looking as hot as
it did earlier in the week as it failed to break through 13. Use that as a critical market and wait for
a close above before jumping long. Otherwise
some puts may not be a bad contrarian move.
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