Energies
Strong selling ensued on Monday as a follow-through to a bearish Friday close. The market suckered in a lot of shorts, me included, and then rocketed back to fresh highs amid growing geopolitical concerns. While the concept of peak oil (the end of the growth cycle of this limited life natural resource) is well supported, it does not necessarily support the current extremes. The market is in a short covering frenzy, overextended beyond what any normal relative strength scale would measure and setting up for a serious bull suck-in and shakeout. Look to the exchange for increased margins at these prices and watch the market come crashing down. I see put plays as really the only remotely intelligent way to play the bear move, but going long this market means asking myself if I am the last person to the party. Natural gas remains independently a good market for playing long call volatility as price expansion is likely in the coming months.

Financials
A choppy week in stocks got little help from continued housing issues, and yet it is having a hard time breaking. Look for price consolidation until Wednesday’s Fed announcement and then watch out! I expect the S&P to set fresh lows shortly following the Fed meeting as market psychology is anything but bullish. Bonds are near their respective highs heading into the report and are exposed to an upside breakout if the Fed isn’t one and done. Throw in some potential stock market weakness and bonds could make a serious move higher in the near term. The dollar is ugly and the overbought condition in markets like the Canadian, euro and Aussie remain extreme. The G7 meeting set the tone for readjusting the Chinese yuan, but failed to enforce the idea that the failing US dollar is creating horrific export and tourism problems for the EU and beyond. I remain a US dollar call buyer and short the Canadian, euro and Aussie long term.

Grains
Corn and beans showed signs of a strong technical breakout but, like many of the moves this year, the market faked a lot of longs in before reversing the trend. The market is still technically and fundamentally bullish after reestablishing a gap penetrating breakout in corn. I am buyer of beans, corn and rice on dips. Wheat may have set its top although it is too soon to tell. Pakistan’s surprise crop could force this market to take the plunge – after all what goes up must eventually come down.



Meats
Cattle is following through on some bearish short term technicals and I am short here. Hogs are an oversold buy with 58 strike calls for December.

Metals
Gold and silver broke out strong and remain surprisingly bullish, supported by a jaw-dropping energy rally and a weak dollar. I would be selling spiking call premiums in gold and silver (ratio credit spreads) and buying puts with the extra premium. Copper remains a strong sell.

Softs
Coffee broke through key support and is technically ugly on a daily chart. Fundamentally, rain in Brazil is forcing some serious funds to run for the exits. The flowering there is happening whether the bulls want to acknowledge it or not. However, that was not the only reason to be bullish coffee. The market is coming off a tough crop year amid rising demand and is seeing harvest problems in Vietnam cause delays that could last several weeks. Kenya has little crop to show for itself this year and the market as a whole remains long-term technically bullish, holding key trend line support.

OJ is choppy after making a nice surge, perhaps setting up a good opportunity to collect relatively high premiums. Cotton is a strong buy, setting up a breakout to fresh contract highs by Thanksgiving. Cocoa spiked on Friday with little fundamental information to back up the move. I saw a story on some bank accounts being frozen in the Ivory Coast and there was also a big drop in inventory stocks. The market is still seeing some strong supply being brought to port and I think this was a technically driven price spike more than anything else. I do, however, remain a call buyer on dips. Sugar is catching a bid from rising energy prices but saw some strong intraday selling break a double top (intraday) and close bearish on the week. 10.50 is the mark to break to turn this market very bullish.

James Mound is the head analyst for www.MoundReport.com, and author of the commodity book 7 Secrets. For a free email subscription to James Mound's Weekend Commodities Review and Trade of the Month, click here.