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___ James Mound Trading Group ___
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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
November 9th,
2008
The two day post election blues should be a blip on the
screen of what should come as my forecast for commodity market strength in
coming weeks continues.
Energies
Flattening supplies in crude oil and refinery rates
remaining stagnant means the likelihood of a winter time supply shift increases
– throw in the OPEC cut and this market sector should reverse when the U.S. dollar
retraces in coming weeks. Straight
calls and bull put spreads are recommended strategies.
Financials
The stock market established a
critical technical and psychology secondary bottom and should see significant
strength this week if the trend has, in fact, shifted to bullish. Bonds are now offering some decent premium
collection opportunities as an intermediate term top and bottom appear to
have been established. However there
is some exposure to a test of the lows as the stock market may surge
higher. Nevertheless, near term short
strangles outside the recent range are recommended. The dollar did not truly regain bullish momentum
last week despite catching a bid following the euro’s
island key reversal top established a week ago Thursday. This means a critical week lies ahead for
the euro to run quickly to the 134 area and reinforce the short term bullish
forecast. The yen could experience
strong selling this week as bonds lack direction and the stock market catches
a bid. The Canadian and Aussie dollars
should see a fresh near term high this week.
**Chart courtesy of Gecko Software's TracknTrade
Grains
Grain prices are on the rise as
three dynamic fundamental shifts are about to occur. First we have drastically reduced cost of
transportation which means a good chance for a spike in international
exports. Second we are seeing lower
harvest numbers due to reduced acreage from a recently revised USDA
report. Last, but not least, a pause
in the dollar rally will help relieve pricing pressure for a rise in
international demand. While it is too
early to tell the impact, the credit crisis should force reduced production
in Brazil and
some other affected countries. This is
a great time to play grains for a winter rally and the current technical
floor makes for a reasonable entry into some long call plays across this
sector.
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Meats
Cattle remains pinned to feed prices and an anticipated
rally in grains should push cattle higher in coming weeks. Hogs are a buy as it supports near the low
end of a wide multi-year trading range.
A critical close above 58 on the Dec. contract should reverse the
momentum that helped push prices down nearly 30% since mid-August.
Metals
Gold and silver have seen some price support as the
dollar congests near recent highs. A
rapid descent in the dollar should create a volatile spike in metals in
coming weeks. Buy metals across the
board.
Softs
Ivory
Coast reports show reduced crop numbers
amid growing destruction from black pod disease, but is this fundamental
supply issue not only priced in but also offset by historically high
prices? There is little that will
support cocoa prices in my opinion, but the dollar pulling back is one of
them. Let the dollar run to 82, likely
popping cocoa to the 2300 area, then buy puts for another leg down. Coffee is a spectacular buy at these levels
and should rise rapidly amid a weak dollar and harvest issues from Vietnam,
which is getting pounded by rain and experiencing harvest delays. Cotton is overdue for a price correction as
acreage numbers just do not match harvest forecasts. This is a market that lacks supply yet is
getting crushed on price.
International crops will likely be withheld from export in an effort
to support prices. Sugar is building
volatility and may make a run in coming weeks, but wait for a break above
recent highs to push your chips into the pot.
OJ is begging for a dead cat bounce since falling nearly straight down
from 210 to sub-80 prices. Buy the
value. Lumber remains a cycle low
technical buy, supported by a possible trend shift in new home construction
in coming months.
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