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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
May 11th,
2008
Energies
A
very bearish inventory report, the second bear surprise in as many weeks, did
little to shock the market downward.
Market participants are in the ‘how high can it go’ mindset and they
are leading the market to one of the largest two week rallies in
history. Moreover, the market has no
technical resistance and little standing in its way to fresh highs on a
fundamental level – especially if they are ignoring inventory. While I would typically look for a topping
event (a fundamentally bullish event that brings about a spike high top on
the psychological premise that all the good news that could be priced in
already is – the its as good as it gets syndrome) this market appears so
overbought and in such market hysteria that any strong profit taking could
start a domino affect. December deep
out of the money puts are the place to be. Don’t try to be a market timer here, but
rather a premium player. By going out
in time you will likely get a nice volatility pop in the options a strong
price correction.
Financials
Stocks took a beating last week
as a the false breakout of a bull pennant setup a reversal and some momentum
that is likely to take the S&P to the 1300 area in short order. Bonds
held as anticipated as the stock market created support via its inverse
relationship that bonds needed in order to remain relatively channeled ahead
of future Fed meetings. The dollar is
exhibiting strong support and I expect continued upside in coming weeks as
pressure on the euro and pound remain significant. The Canadian dollar is caught between
rising unemployment and strong commodity exports. Look for the latter to give way and a selloff to ensue.
Wait for a break below 9675 for confirmation.
**Chart courtesy of Gecko Software's TracknTrade
Grains
Concerns over weather hitting some key growing areas helped to support
wheat early in the week, but the supply and demand report broke the market
below critical support just under $8.
Corn also gave indications of a reversal after a topping event (see
energies above) may have occurred on Friday.
Monday’s crop progress is going to be huge! Beans remain exposed on the supply side but
will likely get some beneficial plantings from the wet weather in the corn
belt. The sector appears to be vacillating
back and forth amongst the various big three, toggling for position ahead of
the key growing season. However this
seems like a setup for a market top right now and a strong selloff in coming weeks.
A critical couple of days lay ahead for rice as a break below 2150
sets up a market failure.
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Meats
Cattle caught some strong support this week on bullish
fundamentals, but I expect a price correction in coming weeks. Hogs are also setup for a solid 6-8% retracement. The
meats look ready to breakdown and puts can be bought on the cheap.
Metals
Gold and silver continue to see
far stronger price pressure on days of dollar strength than it does support
on weak dollar days. This is a
sentiment trend shift that shows on a short and intermediate price chart and
sets up a quick move in gold to 800.
Silver should follow suit.
Copper is likely to see pressure as an ugly strike in Chile
comes to a close. Platinum remains a
sell despite some continued mining issues. A strike in Peru’s
mining area could become a more prevalent issue for metals then it seems
now. Keep a close eye on this moving
forward.
Softs
Coffee is choppy as revised
Brazilian crop forecasts are way under private outlooks and the dollar gains
on the Real. The market remains a
strong buy with technical confirmation on a break above 140. Cocoa
is showing an exhaustion pattern that may setup a top here, but it is cocoa
so pick up some cheap puts as opposed to exposed futures. Cotton remains a buy at these levels and
has developed a nice rounding bottom formation. Despite some beneficial rains in Texas
to facilitate planting, this market is far too under-planted to pull out on
top this year. Look for a strong move
higher to keep momentum going. OJ has
been virtually untradable lately which is putting
volatility premium and spec demand into the option market. A bull call spread or ratio call spread
looks good to me. Sugar got a price
pop this past week as energies shot up, but don’t expect too much follow
through.
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