Energies
A jaw-dropping crude oil inventory report, showing an 8 million barrel draw (as opposed to the 800k draw forecast), did little to stop this market from continuing its retracement. This market remains in a bear trend with little price support sustaining the market at these levels. A benign OPEC, declining geopolitical concerns, a late winter and a ton of profit taking all make this market capable of a complete collapse over the next couple of months. Keep a close eye on the weather and even the inventory reports, but there does not appear to be much on the horizon to stop the market from further declines. This market is like a rubber band stretched tight, and the tighter it stretches the harder and faster it snaps back. Natural gas can still benefit from a winter weather issue and rally on its own merits, but it is not a pretty chart.

Financials
Stocks offered a strong snap-back rally this week, continuing to bring choppy trade and sustained volatility. The recent surge is a good confirmation that the market is likely stuck in a wide range and will see declining volatility as the month goes on.



Bonds have set a definitive near-term technical top and shown expansive volatility as the Fed throws the market off with the potential for continued rate cuts. The Fed meets this week in what has become a pivotal FOMC meeting as recent Fed speak has suggested that a cut is likely and that the potential for future cuts remain. The forecasts range from a Ã,¼ to a Ã,½ point cut this meeting and I find it more likely that the Fed will create some sense of order by cutting a quarter point, but Bernanke has been anything but conventional. The dollar is showing some signs of support but there is no get up and go to the current move. I would wait for some upside volatility with some volume backing it up before biting on it being the real deal. I continue to see a long term trend reversal in the dollar, euro, pound and Canadian dollar.

Grains
Soybeans and corn caught bids this week after a false top, as concerns over drought conditions in Argentina and Brazil growing regions setup a major supply problem heading into January. Corn is over 80% planted in Argentina, and beans over 50%, which creates a lot of exposure to a drought. Wheat is rallying on weather issues in Canada as some areas are experiencing drought conditions and other areas are getting too much rain. The grains are showing us that a winter run is well on its way. Rice continues to rally as demand in the U.S. surges over historical levels and supply issues abound. Throw in a very real potential for a China crisis and you have a market that could leap far beyond the highs seen over the last decade.

Meats
Cattle broke out to the upside of a pennant. This offers a value entry to a short play, but I would wait until the market breaks back below the under side of the pennant before over-committing. Hogs remain a buy at these levels.

Metals
Gold and silver offered choppy trade as crude oil tanked and the dollar supported. I continue to see downside in all metals, with a focus on gold and silver. I look to sell call premium in silver on bounces with ratio credit spreads and scoop up some straight gold puts.

Softs
Coffee is testing critical resistance at 131.50 and should have no problem breaking through that this week on its way to 138. Cocoa did not selloff despite a failed follow through on strike threats. When cocoa farmers are this dissatisfied with their pay it does not normally end with a benign outcome. I look to buy dips here with long-term call plays. When this market breaks through 2150, the volatility premium will spike. Cotton is getting some supportive long term analysis as acreage forecasts and demand predictions suggest 2008 will offer a substantial cotton rally. I would buy the value now. OJ is catching some support as crop issues in Brazil and California make this market capable of a quick shot to 160. Sugar could make a run at the double top resistance at 10.50, and I would establish some long-term call options to play the move. Lumber remains a value buy.

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.