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The
Weekend Commodities Review
By Head Analyst
James Mound
For the Week Ending
November 23rd,
2008
Friday’s treasury secretary announcement may give the
markets exactly what they need to make a bull run. Throw in a good base support in the euro
and this is what the bulls have been waiting for so get ready for a volatile
holiday shortened week.
***In observance of the
Thanksgiving Holiday weekend there will be no Weekend Commodities Review next
week. Have a Happy and Safe Holiday.***
Energies
Oil below $50 on a single down
leg from $147 seemed impossible to even the most extreme bears, but here we
are. The dollar turn this week to
bearish should push oil prices higher as distillate supplies go into a period
of draw. Expect a boost in natural gas
as we get a cold few weeks in the U.S., but the surprise supply increase last week cannot be
entirely ignored.
Financials
The big news came late Friday
with the announcement of Tim Geithner as the new
treasury secretary, spiking stocks into a weekend rally. After the close CNBC was pushing a news
story about Summers being the next Fed Chairman but there are three things to
note here – 1) Where the news came from is a bit of an unknown 2) It can’t happen until 2010 3) The Fed Board needs to approve the election. So whether it was a ‘test the waters’ move
or a bunch of BS remains to be seen, but the real focus now is on Citi and the government’s bailout that needs to
happen. Then it will be on to the
automobile industry with a revised bailout proposal due out by the second
week of December. I suppose the
underlying point of all this is two fold.
First, whether it is an ideal response or not, the coming weeks will
provide solutions for several panic button topics for investors. Second, somewhere along the line we stopped
caring less about economic data and more about government intervention, which
means the net outcome of these moves will likely
push a bullish psychology into the stock market and then ultimately a refocus
on economic data. Buy the stock market
on dips.
Bonds made an epic rally in what
could only be described as a capitulation event. This should set a spike high in the market
(let’s be very, very worried if that high gets broken) and offer an
impressive short from here.
The dollar is finished to the
upside for this year, in my humble opinion, and the euro, pound, Canadian and
Aussie dollar are all buys. The yen
should fall along with bonds and the puts in this market are so cheap it will
feel like they are paying you to buy them.
Grains
Are grains destined for an epic
market collapse? Prices continue to
tumble on strong supplies and weak demand, however
there is a lag in foreign demand as this credit crunch freezes assets that
would buy grains on value during a period of cheaper transportation
costs. This lagging demand is soon to
be realized and a grain rally is likely to ensue in coming weeks as the
dollar takes a bit of a beating. Get
long near term calls because it is now or never (well never is more like a
few months in a trader’s mindset).
Rice continues to be a sell with some price support around 12, but
overall this market is exposed to further downside.
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Meats
Cattle took a hit this week as
declining feed prices and strong dollar means good supply and weak
demand. Expect a strong turn to the
upside in coming weeks as demand spikes and grains rally. Friday’s cattle on feed was bullish as a
nearly 7% drop was far below expectations.
Hogs remain a buy through year end.
**Chart courtesy of Gecko Software's TracknTrade
Metals
Gold is getting a little tricky lately. The flight to quality from the stock market
plunge didn’t kick in and the market is lagging the dollar moves because the
trend in currencies is not as clear as it was when the dollar was surging to
fresh highs every other day. Physical
gold is nowhere to be found and winter Asian demand was very strong this year
by some perspectives. The market could
be setting up a major spike rally as the dollar turns south, so be on the
lookout for opportunities to get long straight near term call plays and
possibly futures. Silver remains a
volatility play to the upside with under priced calls – a steal relative to
what could be a $3 plus move in a very short time frame.
Softs
Cocoa
is catching a bid as concerns over diseased crops from the Ivory
Coast continue and the market ponders how
to deal with the possibility that a cut in export tariffs could spike
demand. This market is due to correct
to the 1400-1500 area and this bounce was needed to setup more downside
momentum. Do not get caught in the
bull trap here. Buy puts on the
rally. Coffee is getting beat up a bit
as Brazilian flowering conditions have been solid, but keep in mind this is a
small crop year and that means that 2009 will offer some serious supply
shortfalls. This is a terrific market
for a long term buy at value levels.
Cotton is in rough shape but I am contrarian
buyer here, aggressively with calls.
Sugar is turning bullish despite a short term bearish chart
pattern. Play calls with low
volatility premium for a strong rally – if the market breaks 1086 forget I
mentioned it. OJ may get a spike on
some cold weather fears in Florida
in coming weeks, but more important is just playing value in a market that
has plunged from 210 without much of a dead cat bounce along the way. Lumber remains a cyclical value buy.
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