traderkenny
Active member
- Messages
- 106
- Likes
- 4
The Weekend Commodities Review
A Market Review and Opinion Report By Head Analyst James Mound
For the Week Ending July 25th, 2010
For the Week Ending July 25th, 2010
Update
There will be a re-release of the 2010 Mid-Year Commodity Review and Forecast Report, with critical updates and new trade recommendations. It will also include an all new recommendation for my career bet market forecast in the Japanese Yen. The new report comes out on Tuesday and is available for $99 at http://futurespress.com/mega-forecast3.html.
Energies
Crude oil is brushing back up near the highs and I suspect that the time to short is now with stops above the highs. Dollar strength is expected and that will likely pressure oil, along with a lack of a real hurricane threat in the Gulf. Natural gas remains a buy with long term deep out of the money calls.
Financials
The stock market’s strong reversal of the previous Friday’s price plunge suggests bullish momentum and a trend shift in the stock market. I do not see any fundamental or technical reason to believe this statement will hold up, but if purely analyzing the volume and technical ramifications of the last week’s trading one would conclude a bullish trend. This is why trend traders fail in choppy markets – they draw quick conclusions off of small moves as opposed to looking at the big picture congestion that is going on here. We hit a low back in 2008 at 665 and an interim high back in April of 1216, leaving us a congestion pattern within a wide range for at least the next several months, if not years. There is a lot of action to play here, and that action will be dependent on monthly employment data, inflation risk should there be any, and overall Obama and Fed policy. The euro zone panic is behind the market for now, and we will once again focus on things like employment, housing and debt. This psychological shift will bring a wave of choppy trading, a ‘batting of heads’ environment that is highlighted by short term ‘watching paint dry’ uptrends followed by volatile market plunges. This is why many premium collectors in the S&P are getting wiped out and will continue to see exposure to that type of trading strategy. The VIX is high and makes this type of action almost worth the risk, depending on the strategy of the premium collector.
Bonds have broken out but be weary of Wednesday’s high as the potential top in the market – my gut says we set a new high but that is a strong technical top that is worth short term swing trading against. The dollar remains a buy down here, but choppy currency action in the dollar, pound and euro is expected for the next couple of months. The Aussie dollar and Canadian dollar are both shorts at current levels.
On June 16th I released my second career bet market forecast to the public, vowing to stop writing the Weekend Commodities Review forever if the Japanese Yen did not hit 140 before 80. To clarify, the 140 target is a bullish yen forecast (this equals 71.4 yen to 1 dollar), and is based on my expectation for the U.S. dollar to experience a bit of a walk out by foreign investors who moved to the dollar during the euro panic. The yen represents one of the best alternative 1st world safe haven currencies to the U.S. dollar and Euro currency.
1. Economic Recovery – The Japanese economy, on a long term basis, has been on the road to recovery after one of the longest recessionary environments of any 1st world country in recent history. Japan has had to deal with a global pullback, but given its recent history it is in an ideal position to forge ahead with its recovery long before the U.S. or European economies.
2. Minimal Currency Intervention – When the new government took over they immediately came out and publicly stated their interest in letting the market determine fair currency evaluation and intent to no longer intervene. For decades the Japanese government has intervened when the currency strengthened as Japan’s economy is heavily dependant on exports. Demand is strong when the yen is weak compared to the importer’s home currency. The government has since backed off this commitment but in the end the likelihood for strong intervention is greatly reduced.
3. Debt Buyback – The new finance minister has spearheaded a major effort to stabilize the debt situation in Japan by building a fiscal responsibility plan for a 10 year debt buyback. Lowering debt typically strengthens the currency. By stark contrast the U.S.’s mounting debt crisis is akin to printing money at will and is a primary driver behind global doubters of the U.S. economic outlook.
4. Foreign Investment – Part of the new economic plan is to reduce the corporate tax rate for foreign corporations. This is no minor incentive – a drop from 40% to 25% - and will likely bring waves of foreign investment. In addition to the economic benefit this move will also bring foreign dollars that need to be converted to yen, sparking another avenue for currency demand.
5. Dollar Beneficiary – Similar to the yen and U.S. dollar’s strength that came from the panic exiting of the euro currency, the yen will see strong gains as those in the U.S. dollar look for alternative currencies to move to when the U.S. economy falters once again.
The technical setup in the yen is also very bullish, currently sitting just under multi-decade highs and very close to the all-time futures contract high. I believe the yen will stage one of the biggest breakout rallies of any currency in recent history, sparked by large foreign investment and technical short covering. The Japanese Yen is often cited as the Wild Wild West of currencies and I suspect this will be a very accurate label for the volatility that the yen will experience as it breaks out to 140 or higher. I continue to recommend the yen and standby my forecast that:
The Japanese Yen futures will hit 140 before 80 or I will quit writing the Weekend Commodities Review…forever.
Past performance is not indicative of future results.
**Chart courtesy of Gecko Software's TracknTrade
Grains
I suspect grains are about to get some hedge selling that will lead to a bit of a long liquidation this week. Corn, wheat and soybeans are sells across the board. Rice remains a buy with straight calls.
Meats
Hogs have a clear chart pattern suggesting congestion until 85.10 or 78.20 is broken on the August contract. Give until 86.70 or 76.20 on either side before confirming the break. Cattle prices continue to rise amid strong grain prices and supportive demand. Buy puts on this move to play a severe downside correction.
Metals
The longer gold holds on during this choppy stock and commodity market environment the longer the congestion sets up a major breakout. Long strangles are recommended. Copper remains a sell.
Softs
Coffee remains a strong buy on dips as the market congests after its recent breakout. The coffee market is exposed to a Vietnam supply squeeze, Brazilian supply disappointment (they are expecting record crops), and a rising global demand component that skews the ending stocks. Bull call spreads are recommended. Cocoa is pushing down on key support, with a break below 2900 being a key indicator of another big selloff coming. Cotton remains a buy after falling unexpectedly over the past few weeks. This market has undersupply written all over it and a short covering rally ahead of it. Buy the dip with straight calls. OJ is a sell despite an uptrend this past week. The potential for hurricane activity gets short covering going, but I do not expect a major landfall hurricane in Florida to be a real threat all summer, thereby causing a downtrend to ensue and OJ prices to falter to 110 or lower. Sugar remains a buy to 1950. Lumber is a cycle buy with a move to 300 expected.
*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.