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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
September 7th,
2008
Energies
A safer landing then anticipated of Gustav in Louisiana set the stage for another oil plunge and potential test
of the $105 area. This market has some
support at 105, 100, and 92.70 respectively.
I continue to see these support areas more as targets than potential
bottoms. However, oil is down over 25%
within a short time frame and the market is likely to congest between 90 and
130 between now and the end of the year.
This means defined risk premium collection is recommended (short
condors or calendars). Hurricane Ike
is on the move and may wind up forcing an evacuation in the Gulf and might
even take a run at Louisiana or northern Texas. The air channels
are pushing the storm through Cuba but allows for a northern curvature and strength
regeneration as it heads into the Gulf.
Coming out of a large landmass the storm really has a much wider than
forecast potential track and therefore the exposure will likely be there for
a few days. We are still in the heart
of hurricane season with more storms on there way. This may be an excellent time to make a
storm play on natural gas for a spike through the most recent highs.
Financials
Stocks took a solid beating, as anticipated, but some
choppy and volatile upside should be expected in the near term. Employment was ugly, but will likely be
redeemed on the revision come next month.
However, this leaves three weeks of negativity for
the market, but expect the S&P to stay between 1220 and 1300 in
the near term. Bonds shot higher amid
the stock plunge, but will have a difficult time breaking through 121 and is
a short at these levels. The dollar
continues its bull run and my 80 target is upon us. This market probably has another leg up to
82 and then it will develop a pennant that takes us through to
mid-October. The euro and pound remain
shorts but with little potential in the short term. Sell wide strangles in the euro as the
premiums are high and the market will likely be range bound over the next 6
weeks.
Grains
Grains remain choppy and
susceptible to wet weather as we head into harvest season. If there is too much rain from these storms
it will devastate the harvest. There
is some serious flooding potential out there and it is still early
September. This market sector is no
longer trending but is still volatile and likely to breakout to the upside in
the near term. Long strangles and bull call spreads are recommended despite
the technical picture.
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Meats
Cattle is down trending and is dependant on a grain rally to force
support. Hogs should see some continued
downside after congesting near the bottom, as China’s lifting of German pork comes after a two year
negotiation. Meats are still heading
south.
**Chart
courtesy of Gecko Software's TracknTrade
Metals
Metals are looking awfully ugly during this currency
reversal and will continue to see selling pressure as the dollar sets fresh
highs. Target 740 on gold and 11 on
silver for support and a buying signal.
Copper is ugly and weakening demand is going to kill this market that
has ridden a high for way too long.
Softs
Cocoa
is seeing support from strong demand at the ports, but this market is
unlikely to see fresh highs. In fact,
puts are the play here with a move to 2000 by year’s end. Coffee supplies are strong but the long
term merits of this bull market remain intact and should be traded on dips
with long term bull call spreads.
Cotton is getting beaten up, but despite the ugly technicals
this market remains a value buy.
Straight calls remain overpriced so look at bull call spreads or
straight futures. OJ is getting a pop
from the hurricane activity but remains independently strong and a good buy
on dips with straight calls. Sugar is
experiencing selling pressure amid a falling corn market and rising supplies,
but should see price support in this area in the short term. This market lacks a motivation to breakout
and remains a short strangle opportunity on bounces in the near term.
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