James Mound's Weekend Commodities Review for August 15th, 2010

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The Weekend Commodities Review​

A Market Review and Opinion Report By Head Analyst James Mound
For the Week Ending August 15th, 2010​

Energies

Crude oil offered a strong price correction last week as a rising U.S. dollar combined with concerns over China growth/demand to create a bearish market sentiment. The market is still stuck in a wide range with the top likely in place. I anticipate continued downside in coming weeks and recommend put plays in crude oil to take advantage of the trend shift. To discover how I recommend trading crude oil I have issued a trade alert in this week’s Mound Trade Signals report – click here to subscribe and receive the recommendation. I also recommend buying heating oil against a short rbob gasoline. Look at long term call plays in natural gas, but otherwise the chart pattern is ugly near term and a hurricane is about the only thing that can spike this market at the moment.

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Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Financials

Stocks began a decline off key Fibonacci resistance and I believe significant downside is ahead as the Fed paints the picture of a gloomy economic future. Declining growth, failing employment, worsening housing and a shift in consumer spending is damaging the efforts of the bailout to mask the trouble our economy is in, and now the stock market is going to feel the pain of being a believer. Bonds have already shown the way as it runs to test the epic highs of 2008 and continues to be a breakout buy. The dollar remains a strong buy with sells on the euro and pound. The Australian dollar is at a critical juncture in which a move to 8780 would indicate much more downside, otherwise a long term trendline support could be in the works. The Canadian dollar is a sell at current levels. I suspect that a U.S. dollar rally may not hurt the yen as bad as one would think as the yen will likely benefit from a weaker stock market and continue to gain momentum on its own bullish fundamentals which is why I continue to stand by my forecast that:

The Japanese Yen futures will hit 140 before 80 or I will quit writing the Weekend Commodities Review…forever.

Grains

Wheat congested under resistance for most of the week and appears set to selloff this week. Beans have diverged and remains bullish until it breaks back below $10. Corn should sell off with wheat but I like a long corn to short wheat spread (1 to 1) to play a tightening of the spread in coming weeks. Rice is a buy with long term calls.

Meats

Hogs remain bearish with more downside expected this week. Cattle is a strong sell with straight puts recommended.

Metals

Gold may finally have met its match as a rising dollar and weakening economic outlook suggests that deflation is the main concern. If gold is in fact a hedge against inflation then this would create a bearish shift in prices. Silver should lead the way. Copper is a strong sell with futures or puts as global demand is expected to weaken.

Softs

Coffee is likely to breakout of its recent congestion, and I remain a buyer on dips with expectations for more upside in coming months. Cocoa has fallen below critical support but has a couple of more layers to go before the bottom falls out, which I expect to occur rather quickly. Cotton broke out last week as the USDA forecasted a massive drop in 2010-11 ending stocks, which included an estimated stocks-to-use ratio at a 16 year low. This comes on the heels of a damaging flood in Pakistan and a rise in grain prices. I have been saying for a year that cotton would experience an epic rally as U.S. planted acreage disappears and global demand returns. This reality is just beginning to set in and cotton can easily see 100 or even 110 as a price target this year. That being said, the technical outlook from Friday’s breakout ended negatively and a new high is needed on Monday to sustain short term upward momentum. OJ is a sell to 110. Sugar has likely topped and I recommend puts to play the downside to 15. Lumber remains a buy.


*Disclaimer: There is risk of loss in all commodities trading. Losses can exceed your account size and/or margin requirements. Commodities trading can be extremely risky and is not for everyone. Some option strategies have unlimited risk. Educate yourself on the risks and rewards of such investing prior to trading. Past Performance is not indicative of future results. Information provided is compiled by sources believed to be reliable. JMTG or its principals assume no responsibility for any errors or omissions as the information may not be complete or events may have been cancelled or rescheduled. Options do not necessarily move in lock step with the underlying futures movement. Any copy, reprint, broadcast or distribution of this report of any kind is prohibited without the express written consent of James Mound Trading Group LLC.