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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
September 28th,
2008
Energies
The energy sector has suddenly become the forgotten news
story as the economy and even the election take center stage. Meanwhile oil prices have rebounded about
20% off the lows as declining supplies and recent hurricane weather has hurt
production out of the Gulf of
Mexico. I expect crude oil prices to make one more
push higher before congesting between 120 and 90 through year end. Natural gas remains a solid bull play as it
has not rebounded with the sector and is showing discounted call premium
ahead of a seasonally bullish time.
Financials
The stock market has exploded with volatility, marked by
the limit move rally following the announcement of the government bailout
plan. Then the politicians got in the
mix and put a damper on what was a bold, albeit socialistic, plan. Heading into the weekend it appeared to me
that this was political positioning at play and that a plan will get
approved. Therefore I am a believer
that the near term bottom in the S&P has been set and the market will
surge on the news. Moreover the hedging
of funds in the S&P will need to get unraveled and that means a
significant buy back of shorts once the government ends the short selling
freeze. Bonds are reeling off the
highs as the Fed’s stand on additional rate cuts took the market by surprise.
This market remains in congestion, but
with a wider range to test on both sides. Bonds will be entirely dependant on
stock market movement until this bailout gets resolved one way or the other. The dollar took it on the chin as well after
achieving a spike high top off this strong upswing in prices. The dollar is also likely to congest for
the next few months, with a 75 low and 82 high for the anticipated range
bound action.
Grains
Corn turned bearish on Friday’s
breakdown but overall the market is exposed to a strong harvest time rally
and could bring the whole sector along for the ride. Buy the dips in this sector with straight
call plays or bull call spreads. Rice
remains a sell at current levels with straight puts.
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Meats
Declining supply, below analyst
forecasts, and expanding demand channels makes cattle a short term buy
despite my longer term bearish outlook.
Expect a pop in prices to follow a grain rally and then jump short
with long term puts and wait for the crash.
Hogs are also a short term buy following my 66 target being tested and
the price support that followed.
Metals
A volatile gold and silver market took a little break
this week, or at least a bit of a dip in volatility. The dollar is unlikely to see further lows
on this retracement and that puts a damper on the
bulls hopes to see follow through on gold’s big move. Options remain very
overpriced and this is fast becoming a sector not worth trading. The trend is unclear, volatility is
unpredictable and options are overpriced – sounds like we need to look
elsewhere for opportunity.
Softs
Cocoa
is catching a bid as we approach the key cocoa season in the Ivory
Coast which begins over the next few
weeks. Wet weather could hold up the
season a bit but overall a good start should force a big selloff
in this market. Position yourself with
long term put plays to stay exposed to downside volatility. Coffee is choppy but holding long term
trend line support. I am a buyer at
these levels with futures, bull call spreads and ratio breakout spreads. Cotton is technically ugly, and it is
capable of significantly lower lows, however I am contrarian
here and expect a long term rally to ensue from these levels. Long futures with put protection are
recommended. Sugar is rallying but a
quick look at the chart shows this market is in a congestion pattern that
suggests selling not too far away. OJ
continues to slide and I continue to recommend dollar averaging into a long
position.
**Chart courtesy of Gecko Software's TracknTrade
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