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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
April 6th,
2008
General Comments
A
benign and choppy week is likely to be followed by a return to a sea of red as
commodity and financial markets will be exposed to a critical IMF report
showing global growth declines and a G7 meeting at the end of the week that
should rocket the dollar higher. The
Fed minutes release will also be significant since we saw two descenders last meeting.
Throw in a WASDE and crop production report and we got ourselves one
exciting and volatile week that options specialists like myself cannot help
but get excited about. Buckle up
because it is going to be a bumpy ride!
Energies
An informal OPEC meeting scheduled for April 20th
follows a month over month drop in supplies of about .3%. Dow Jones reported that China’s
production could increase by over 3 million barrels a day in 2008,
potentially offsetting continuing supply issues in Nigeria.
The ramp up to the summer driving season will focus less
on crude oil inventories and more on distillate supplies and refinery
utilization. The choppiness in oil
sets up a consolidation pattern near the highs, typical of a bull flag
pattern a potential technical setup to new highs. Despite the pattern I take any bounce as an
opportunity to accumulate puts heading into a period of potential oversupply
and an expectation of an uneventful first part of the upcoming hurricane
season. Natural gas set a strong
secondary top and is a good short with puts on the way down to 850.
Financials
An impressive rebound in stocks
last week underscores a key repetitive pattern in this market. Simply, dips are being bought and this is
one seriously choppy market. Look for
sell strangles and bear put ratio credit spreads on strong down days. Bonds continue to channel but will soon
breakout, likely to the upside, due to continued pressure on the Fed to cut
rates. The dollar is choppy and
volatile, which is a good sign of a potential trend shift. Short the euro and pound. I would short the Canadian on a break below
the congestion lows.
**Chart courtesy of Gecko Software's TracknTrade
Grains
Corn broke to fresh highs as concerns over the bullish prospective
plantings report were further buoyed by weather issues affecting
planting. It is a little early to be
worrying about yield issues on late plantings so this seems more like a week
in which some fund buying came back into the market. The WASDE and crop
production will shift grain momentum bearish as the choppiness in the market
is congestion before a further breakdown.
Expect a critical sector failure next week.
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Meats
Cattle remains completely at the
will of the grain markets but is in a definitively bearish technical pattern.
Hog supplies are up 7% from last yea according to the USDA, and significantly
above analysts’ estimates.
Metals
The metals complex saw choppy
trade with light volume buying followed by general selling pressure in the
overnight market. This market is
dependant on the U.S. dollar which is choppy in its own right. There is no support here and I suspect
another wave of selling is coming shortly.
Expect a strong turn following the G7 meeting at the end of the week.
Softs
Coffee setup a potential rocket
style breakout to the upside for this upcoming week, timed well for upcoming
May option expiration. This recent coil formation in the daily chart looks
like a bearish congestion, but given the vertical selloff
just prior it can just as easily be offering a baseline support and setting
up a real bull run.
Cocoa
is getting some favorable weather for their mid-crop which is helping to
further the downside pressure in the market.
A sucker’s bounce is not out of the question since we just experienced
a more than 20% pullback in under a month.
Cotton is offering support near a
channel that existed prior to this recent v-shaped rally and reversal. Tread lightly here but a bounce is not out
of the question.
OJ is getting hit with strong
inventory stocks but is partially offset by some drought conditions across Florida. This weekend’s rainfall was significant and
may cause some selling pressure but it was not nearly enough to fix the
drought and would be an opportunity to scoop up some long term calls.
Sugar production in Brazil
is expected to be the highest on record and is bringing some selling pressure
on fund buying bounces. A strangle
here couldn’t hurt as premiums have dropped out of the market a bit, but
overall there is not much here.
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