General Comments

Euphoria from the Fed’s pre-announcement and execution of a discount rate hike has the markets flying high, but I haven’t seen a more illogical reaction in years to what was a simple and long overdue partial tie off to a government bailout gift to the banks.  I believe this week ahead is going to slam the stock market and take commodity prices for a ride while the dollar sets new 2010 highs.  This is likely a lead up to a monster March and Q2 of 2010.  I have a whole new round of forecasts, trade recs and a 4 week free mini-subscription to my Mound Trade Signals service available in a never offered before special package - http://www.futurespress.com/mega-forecast2.html (just $69!), so I hope all my readers take advantage of the offer.

Energies

Expect choppy volatility with front month crude oil staying between $74 and $84 through month’s end.  Oil prices have garnered support as the dollar became a non-issue for a couple of weeks as it stays in a tight range.  Additional support from sustained cold weather in the northeast and geopolitical risk with Iran makes oil look like a strong buy after establishing a low near $70.  However, I recommend being contrarian here and buying puts at these price levels.  Natural gas has an ugly head and shoulders pattern and might see 30-40 cents more downside, but I suggest shorting crude oil against long natural gas as a spread play.

Financials      

The stock market continues to show strength as the Fed provided a vote of confidence for the banking system by raising the discount rate.  This is not significant.  The Fed has been giving banks a free ride on the profit train since plunging the discount rate during the banking crisis.  This helped to create a strong spread for banks to profit on overnight loan rates.  The Fed probably waited too long to start reversing this process but the market appears to have taken this as a sign of economic recovery.  Unfortunately it is merely a sign of banking system stability.  The real bullish news for the market is the CPI report which showed a lack of inflation risk – something the market will be watching very closely throughout 2010.  The dollar, in part because of this CPI report, has a clear path to fresh 2010 highs and I continue to standby my prediction that:

The dollar will hit 86 before it breaks below 70 or I will stop writing the Weekend Commodities Review... forever. 

The yen pulled back a bit, offering bulls a great third entry into a long play.  The Canadian dollar may appear to have turned bullish near term but I think we are actually in a bearish congestion pattern and this rally should be sold into.  The euro, pound and Australian dollar are all strong recommended shorts.

Grains

While corn acreage forecasts declined the export demand is also slumping and overall the grain markets walked away from last week’s USDA production and export forecasts a bit bearish.  Beans got slammed with the worst of the USDA forecasts and is a short against a long wheat.  Rice remains bearish after collapsing this week, but 1396 on the May contract remains a critical technical support to watch.  I expect fresh lows shortly.

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Meats            

Cattle has been on a serious bull run, however I remain contrarian and expect selling off of Friday’s bearish cattle on feed.  Hogs hit my upside target so for those that followed the recommendation congratulations!  Going forward the market has limited upside potential in my opinion and I would start looking at shorting near this level.

Metals        

The big news in the gold market is the IMF’s announcement that they will be selling the remaining 190 plus tons of gold on the open market, a move that could wreak havoc on gold prices.  The key here is that when the IMF started this effort to unload over 400 tons last year it had major buyers like India lined up.  Now, with nearly half the gold left it finds itself exposing the market to a huge supply during a time of U.S. dollar strength – a recipe that could make some huge waves.  Silver is likely to be bearish by association.  Copper has made a resounding comeback after crashing down as expected during January.  China remains the focal point as they downplay their growth and analysts and industry players ramp up buying ahead of a anticipated China copper restocking effort in 2010.  If I were you I would not get too far ahead myself with this one as China bullishness appears overzealous from my standpoint. 

Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Softs          

Coffee remains a buy as it develops key support above trendline and fundamental strength from a reduced Brazilian crop estimate.  Cocoa is a short as I believe the top is in.  Cotton remains a strong buy on breakout technicals and fundamentals to back it.  This market could see 85 very quickly.  Sugar is a buy on this dip.  OJ is a strong sell as the cold Florida winter has likely seen its last frost scare and the market will go into sell the news mode before value buying in May or June ahead of hurricane season – I suspect the market will experience a 20% drop in the meantime.