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The
Weekend Commodities Review
By Head Analyst James
Mound
For the Week Ending March 16th, 2008
*Holiday Note: There will be no Weekend Review next week due to
holiday.
Energies
A swift move to $110 on crude makes my early top forecast a
bit weak; however the market does appear to be shaky at this level. An
important weekly inventory report showed a strong build in crude inventories, a
significant change from the previous week which now appears to be the outlier
in a string of supply gains. The
drawdown in heating oil distillates is expected as we head into a seasonal
shift to rbob demand as opposed to winter oil.
Supplies are strong and are going to overwhelm this market into a cycle
shift to the downside. Get short with
puts. Natural gas should dip and offer a
call buying opportunity around 820 for a long term play heading into hurricane
season.
Financials
A Fed monetary infusion to support bank liquidity netted a
one day blip on the screen as the market erased one of the largest one day
rallies before the week was over. A
shocker from Bear Stearns is just the beginning, but the market is likely to
take the $2 a share buyout and Fed bailout too much to heart. This is recession folks, and there are going
to be a Bear Stearns collapse or two during this mess, but it should not be a
long term catalyst for a panic out of stocks or the U.S. dollar. Sure, maybe the stock market uses this as
cause to break to fresh lows, but the net outcome on this is often a buying
opportunity for U.S.
based investments, be it the dollar or the stock market. Time and time again we jump on these moves
only to have the market’s resiliency and perhaps the Fed’s support to reverse
the moves. Companies like Bear Stearns
will get bailed out and eat some dough in the process and the market will
recover…eventually. This is a choppy,
bloody stock market beat down and the S&P is likely going to see 1000
before it is all said and done, but this market is resilient and deserves to be
seen as a choppy congestive market that offers great premium collection
opportunities on major dips.
Bonds are testing the highs, mainly on expectations that the
Fed may cut as much as 75 to 100 basis points next week. The Fed seems to be in panic mode and trying
to appeal to the market and the banks.
The problem is that the banks are not reflecting the interest rate cuts
to the net rates for consumer loans, and that neutralizes the Fed’s
efforts. Why cut rates and spike
inflation and ruin the dollar if it isn’t even going to help Joe American? Look for a 50 basis point cut (a shocker
given current pricing in of 100 basis points) and a pullback in the bond
market, but buying dips is definitely the way to go here because the Fed isn’t
turning the corner to raise rates anytime soon.
The dollar is getting absolutely pounded despite a dollar supportive CPI
report on Friday. Can the Fed cut a
point and ruin the dollar? I feel
strongly that the Fed policy at this point will have to conserve what little
support there is left in the dollar so I go into the Fed meeting buying the
dollar and selling bonds. The Canadian
dollar, yen, pound and euro are all shorts, with a focus on Canadian puts and
euro bear put spreads. Expect a currency
intervention as early as this week coming up as the EU,
BoE & BOJ unify to support the dollar.
Grains
A massive wheat rally falls apart
late in the week, setting what is effectively a double top and a bear head and
shoulders pattern. Throw in a key break
to new lows on front month beans and a strong technical turn in corn and rice
and these grains look ugly ahead of the key acreage report due at the end of
the month. Continued selling should be
expected into next week.
**Chart courtesy of Gecko Software's TracknTrade
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Meats
Grain prices begin a significant
pre-acreage report turn and meat prices take a tumble. This market is exposed either way and is a
great long strangle play in either cattle or hogs. Hogs are already on the move and cattle is not far behind with some volatility of its
own. The main issue with hogs is that
they have yet to prove they can break out from this wide congestion pattern,
which suggests a bounce from about 66 on June despite ugly fundamentals.
Metals
Gold developed congestion below
$1,000 before breaking through without much momentum. The weekend collapse of the
U.S. dollar surges gold through $1,030 in the overnight, setting up an
important couple of days of trading.
If the market closes back below $1,000 then there is an actual sell
signal, $955 or below confirms the reversal.
I have to be contrarian here.
This market is showing the largest 6 month point move in decades and is
so overbought it makes crude oil look like a buy. The dollar is overdue for support and this
market is getting way too much buying from foreign interest that is bailing on
the U.S. stock
market. Buy gold and silver puts and get
short platinum and palladium. Copper $4
resistance appears to be holding and is a good sell and hold short play.
Softs
Coffee is getting choppy and
volatile as revised Brazilian crop forecasts show massive increases in
unexpected supplies despite earlier concerns over yield from a late
flowering. The market is getting bought
up on dips, however, as long term specs and institutionals buy the first value
dip they have seen in months. This is
not a market that is going to turn on an extra 10 million bags from Brazil,
if in fact that is even the reality of the situation. Buy long term wide bull call spreads on the
dip.
Cocoa
is riding the high of a port strike in the Ivory
Coast, but this is likely the straw that will
break the camels back. Scoop up some
Dec. puts and play a dollar bounce to force a quick plunge in this market to
2450.
Cotton is truly untradable with
lock limit moves every other day and option premium so off from reality the
floor traders are better off taking a couple of weeks in the tropics than
bothering to show up for work. Avoid.
OJ took a beating on Friday as
bearish crop news and favorable weather bring the market back to test key
support. This market looked technically
strong and took a rough turn this week, so playa wait and see into Monday. If the market holds on Monday buy some July
futures with a 120 put as protection.
Sugar is getting choppy after
retracing from a strong price surge.
This market may be turning bullish once again but I think the upside is
limited.
