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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
July 27th,
2008
Energies
Rising gasoline stockpiles and a call for a release of
10% of the Strategic Petroleum Reserves (SPR) helped to avoid a snapback effect
from the recent oil pullback. Despite
the fact that this bill will likely never come to fruition, the simple act of
the government attempting to alleviate price pressure in oil should cause a
psychological give-up of some of the excessive premiums built into the
market. Rising supplies in gasoline are
key during the summer months, and enough time has
gone by at sustained high prices to cut back on demand. I see major fallout in oil prices forcing a
commodities retracement in coming months, a much
needed global relief that should put the bulls in check (see www.moundreport.com featured articles
for the Mid Year Review and Outlook for more information). Natural gas took it on the chin as supplies
are stronger than expected and the market gave up on its oil piggy back
ride.
Financials
Stocks supported above 1200 in what could be perceived as
a political and PR push for strength amid a banking sector collapse. What else would you expect when you can’t
short a market? Let’s see do I buy it
or do I buy it? The stock market has
always been structured in a way that establishes a buy and hold mentality, so
I suppose logic would suggest when confidence disappears they just put in
rules to stop you from making it go down - and people wonder why we are
futures traders! Now the government
wants to control the CFTC rulebook and kill the last remaining free market
(or as close as we are going to get).
Sell the market up at 1320 if gets there, otherwise it might only give
you a shot at some puts with the market around 1270.
Bonds remain bearish to 112 but generally range bound
until a clear Fed interest rate policy path is established. Everyone knows they want to hike, but the
question is will they? The dollar is gaining support as commodity
inflation gauges like oil and grains take it on the chin, and I expect this
to continue to push the dollar through 74.
A break and close above 7450 puts the dollar on a path to 80 and the
euro, pound and Canadian in breakdown mode.
Grains
Corn has rallied 10% off the lows
set earlier in the week, suggesting a spike low bottom. I am not a believer despite the market
psychology being bullish supported by the market holding just above a lock
limit down intraday earlier in the week.
Sell corn anywhere between 6.10-6.40 and look for a second leg down to
about 4.80. Soybeans are getting a
late start to this selloff and are most susceptible
to a complete failure if corn breaks the lows. Wheat seems supportive here as a good winter
crop can only do just so much to break this bull market. It is unlikely wheat will hold up if corn
sets fresh lows, but I would focus my bearish outlook on corn, beans and
rice.
**Chart courtesy of Gecko Software's TracknTrade
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Meats
Cattle
continues to rely on grain price movement to determine its trend. Hogs could experience some selling pressure
as unexpected strength in supplies in China
may reduce global export demand.
Metals
Gold and silver, and the metals
complex in general, have held up despite a big drop in oil prices, support in
the stock market and the dollar. I
have seen this many times before in the metals. The market participants simply don’t
believe that what they are seeing in the other markets are true trend
changes. They are late to the party
because they do not believe the party will last very long. If the dollar breaks 7450 or the oil market
breaks to 110 then they will have little choice but to play catch up and
watch an epic metals meltdown. Get
short ahead of the action.
Softs
Coffee is getting beat up by
strong supplies from Brazil
and a solid 08/09 forecast for continued strength in supplies. This is a market on a clear long term trend
line support and the dips should be bought.
Cocoa is holding on to
these historic highs despite a better than expected Ivory
Coast mid-crop and the outlook for better
harvest numbers ahead. Historically
the net harvest in cocoa suffers because farmers cannot buy necessary
pesticides. When prices are this high
I would not be surprised to see better end numbers for years to come as the
practice of pesticides becomes the norm.
Cotton is likely to see a rise from a crop hurting hurricane Dolly and
a general poor net number based on lower planted acreage. Buy this dip and play a move to 82 or
higher. OJ is a buy on this dip with
long term calls. Sugar is going to see
a big selloff if corn prices break to fresh
lows. Sugar is susceptible to a move
to 950 or lower.
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