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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
April 27th,
2008
Energies
War with Iran? Once a very a real possibility and now a
few warning shots and we all go home for the weekend with no harm no
foul! Nigerian attacks are heating up
and helping this market hysteria based rally.
$120? $150? $200?
When traders start thinking like this they get caught with the
blinders on. Look at some Dec. 70 puts
on the cheap. A large bid came in
mid-week on Auggie and Dec puts but the premium
evaporated on Friday’s rally, opening up a good opportunity to buy on value. Natural gas is riding the coattails of this
crude move but with the backing of some pre-hurricane season short
covering. It is a bit early to buying
into the seasonal play for my tastes.
Financials
The S&P hit up against 1400
resistance but has a bullish pennant that it will likely breakout out of to
the upside. However this choppy market
is anything but bullish. Wait for the
breakout and sell into it for a quick ride down to 1290. Bonds gave way to serious selling pressure
ahead of this upcoming week’s two day FOMC meeting with the expectation that
the Fed may halt their rate cutting efforts.
I am not sure how this month’s data shows such a reversal in the Fed’s
strategy. You could argue the how low
can they go theory but this market seems to me like it is getting a bit ahead
of itself. Wait for 114 then buy some
bull call spreads. The dollar began
its turn to the upside this week as the failed euro breakout and bear
inflation fueled ride in the yen was only supported by theories of a break by
the Fed. The expectation for a quiet
rally in the dollar is very dependant on the Fed’s next move as a Fed rate
cut halt could push the dollar higher in a hurry. The Canadian remains in a congestion
pattern with a sell indicator on a break below 9680.
Grains
Weather issues put some pressure
on soybeans this week as fears of a last minute rotation out of corn and into
beans for some U.S.
acreage affected by the rain has the volatility picking up in the grains once
again. These price charts look ready
to fall off the proverbial cliff, with a strong dollar helping to put action
behind this recent pullback. Look for
strong morning rallies to be reversed by day’s end all this week as the selloff gets some confirmation.
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Meats
Cattle is holding a supportive pattern but I cannot help but think
this is a good entry to a short play on a break to 84. Hogs are catching a serious bid on a pickup
in demand but I like a put play to see a solid 15-20% retracement
in this market that doesn’t look to be breaking out any time soon.
Metals
Gold gave way to selling amid a
U.S. dollar rally, the first part of a huge liquidation I expect to see in
coming weeks in this sector. If and
when gold breaks 875 then watch out!
Silver is just waiting in the wings with the whole sector susceptible
to a dollar rally. For months gold ran
up in a flat dollar environment, using crude oil and inflation as a
crutch. Now the dollar is turning but
gold can’t hold up despite record oil prices.
This change in sentiment is a good leading indicator that this market
is far from finishing its retracement. Bear metals here we come!
Softs
Coffee is choppy as it reacts to
fears of a solid Brazilian harvest and a strong dollar. Supply is not as solid as some analysts
have stated and I like this entry level to a long play through frost
season. Cocoa
is riding high but showing some signs of losing steam as the recent rally does
not appear capable of follow through.
Sugar is pulling back and shows no signs of staging a rally anytime
soon. Cotton is holding around a
previous channel and I cannot help but think it is the only U.S.
crop that offers a value play at these levels. Long cotton versus short beans (3 to 1
ratio on futures or use options to manage the risk) could pay dividends.
**Chart courtesy of Gecko Software's TracknTrade
OJ volatility is through the roof
on practically no volume. An
impressive looking bottom on the daily chart is plagued by intraday price
spikes on embarrassingly little volume.
I am not biting on the technicals because of
the light volume but I do like a drought and hurricane play in OJ after this
50% drop in price. I recommend long
futures with put protection.
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