James Mound’s Weekend Commodities Review For the Week Ending October 24th, 2010

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The Weekend Commodities Review​

A Market Review and Opinion Report By Head Analyst James Mound

For the Week Ending October 24th, 2010​

General Comments

The gold and silver reversed, getting ahead of a dollar bull run that should set fresh near term highs this week. Oil and some grains have setup congestion patterns awaiting the next moves by the stock and currency markets. The dollar’s break above 78.61 should signal a massive volatility expansion in most commodity sectors.

Energies

Technical congestion in oil is expected to be met with volatility expansion to the downside, sparked by a dollar rally that thwarts global demand. I am a little weary of the exposure to volatility in either direction here, so avoid short futures and focus on puts. Take a look at long natural gas calls to play a volatility spike and also as a possible hedge against a short play on crude oil.

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Financials

Stocks rebounded quickly from a mid-week slide, setting up momentum to the upside on a technical level. However, I do not expect that momentum to materialize. I would look for this week’s housing and GDP numbers to place a negative tone to the markets, but I would also keep a close eye on QE2 and economic concerns developing across the pond. Bonds remain choppy amid a stock market rally, indicating that the market is not convinced there will be a continuation of the rally in stocks. The dollar has setup a nice near term technical pattern on a daily, suggesting a quick breakout above the highs at 78.61. Once broken, the market should see significant volatility expansion and an upside rally to 83. The pound, euro, Canadian dollar, and Aussie dollar are all strong sells, with the yen and U.S. dollar being the primary buys. 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.​

**Chart courtesy of Gecko Software's TracknTrade

Grains

Corn and soybeans flat-lined as corn exports were the worst in nearly two decades for the week1. Rumors of a big China corn buy are unrealized as of yet and the export report next week could spell disaster for grains if the numbers don’t pick up. Throw in a dollar rally and that could diminish export demand even further. Concern of shortages in Asia has rice on a serious bull run that could have legs to it, however the gut says there is a relief selloff about to occur under 1480 that offers a put buying opportunity.

Meats

Cattle surged to test the contract highs and is undeniably bullish as concerns over a grain shortage and rising seasonal meat demand has buyers coming into the market. This type of price extreme offers an historic opportunity to enter into long term bear positions. Scale into short futures, long puts and ratio put backspreads. Hogs have bounced but should see fresh lows.

Metals

Gold and silver have both offered potential tops and have gotten ahead of a dollar rally with a strong decline this week. Gold is already over 4% off the highs, and silver over 7% off its respective highs – all in just 6 trading days. The volatility of this bear move could actually accelerate this week if the dollar breaks 78.61 as anticipated. Copper remains a strong sell.

Softs

The coffee run this week amid dollar congestion could be its last gasp rally in the near term. Puts are recommended to play volatility to the downside. Cocoa is in a congestion pattern and I see choppy downside ahead. Long term puts are recommended. Cotton has reached truly epic highs. History tends to be the best guide and these highs are unlikely to sustain itself for much longer. Straight puts and wide bear put spreads are recommended. OJ is now in a strong downtrend with 110 still a likely target. Sugar is a runaway bull market that is screaming for a put play and I believe there is a strong likelihood for record-breaking downside volatility. 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.