General Comments
The first two months of 2008 have been two of the biggest bull months for commodities in history. Those that have followed my commentary and forecasts know that I have a bearish outlook for commodity prices for 2008 as I see a turn in the dollar and retracement in some very overbought market sectors. Well, timing is everything in this business and clearly the start of the year has shown me up. However, the last time I checked a year has 12 months in it and this massive rally gives us option traders a great opportunity to dollar average into these markets at some wickedly high prices. Stay long term in your trade design I believe that the bear view for the year will pay dividends.

Energies
What happens when a market stockpiles massive supplies, pushing inventory levels to the highest since 1994 for gasoline supplies, but at the same time is hitting all-time highs? Simply, the market turns. Crude oil history is riddled with times in which the market overextends through a supply or demand shift and now is no exception. Turkey has sent some 10,000 troops across the border to Iraq, OPEC meets on Wednesday to potentially cut supply, and the winter weather has been harsh of late, but all those fundamental issues are short term problems offset by a long term supply shift.

Throughout this historic run, crude has consistently set fresh contract highs following a price retracement only to falter within about 6-10% of the previous high. This sets a target near $108 on front month crude, but I see it topping sooner than that. Look for the OPEC meeting to be the catalyst for a top in the market and jump on some bear put spreads ahead of the news.

Financials
Stocks slid on Bernanke speaking of lowering rates and general economic concerns. This market set up this move with a consolidation pattern giving this selloff some real potential to break this market some 50-100 points from here. Bonds rallied on the Bernanke speak and stock decline, but is unlikely to rocket straight through to fresh highs without seeing some price resistance ahead of the FOMC meeting and employment data. We continue to sell put premium on dips, but avoid biting on this rally even it means potentially missing the move as the fundamentals and technicals do not suggest fresh highs in the near term. We are a good Fed meeting or two away from fresh highs from the looks of it.

The dollar is getting pummeled as Bernanke's warning of continued rate cuts threatens this market's structural and fundamental integrity. If we do not see support this week then the dollar may break hard, putting the kibosh on my forecasted first quarter dollar rally. Long term this market is still likely to see a significant rally in 2008 as the U.S. interest rate policy puts it ahead of the global curve - it may just take a bit for the powers that be to see this Fed policy as more progressive than the E.U.'s stay pat stance. This means continuing to allocate funds to a long term bear euro and yen outlook and taking advantage of spikes in prices. We will sell into the current Canadian dollar bounce, as tops in crude and gold are upon us and will destroy the Canadian dollar in coming weeks.

Grains
Wow! What else can be said about the volatility we are seeing in grains? This sector is on fire and waaaay over exposed to downside volatility to participate with futures. Option premiums are through the roof but the current volatility supports the pricing and I suggest ratio back spreads in all three of the majors. Wheat's lock limit down $1.35 open followed by limit up and a flat close signaled a top in that market mid-week and the selling pressure seen later in the week offers solid confirmation. Beans are seeing support on acreage fears ahead of the plantings numbers at the end of the month, but this market is very overbought and worth a bear play at these prices. Rice is worth a look for some straight put plays for July.

Meats
The President of Tyson Foods suggested at an annual NMA convention that a cycle peak for cattle has occurred, forecasting a reduction in cattle supplies due to rising costs. This would take this seemingly endless consolidation pattern in cattle and set up a new pricing structure for meats moving forward. I am not the President of Tyson Foods, but the premise is about the only thing I have heard that would change my perm-a-bear stance in cattle. Corn would have to turn south to change the outlook, but I do feel corn is susceptible to a fall, thus giving a last ditch effort to a change in the fundamental structure of this market and collapse in prices back down to historical reality. Demand is certainly handling this price level, but this market has stretched its rubber band a bit too long for my tastes. We would buy the hogs dip as we are approaching weekly trend line support.



Metals
Gold bugs are rolling in dough as $1,000 gold has become a reality and $20 silver is upon us. The dollar's collapse and mining issues have supported this epic move that has left the market void of serious sellers. Spec and fund buyers combined with a market lacking in sellers gives us market hysteria. Market hysteria sets up a top, the only question is when. The trick here is not to be a timer but rather a put buyer in the midst of this outrageously overbought market. Ratio back spreads in gold could benefit from a put premium spike and offer a huge payoff with the risk centered around playing against a consolidation pattern at this level which is not very likely. Copper puts are also recommended. It is time to jump on the short bandwagon in both platinum and palladium, despite the risks of two very volatile markets without options.

Softs
Short covering in coffee has helped sustain what is now an overbought rally. Recent forecasts for a lower than anticipated net Vietnam crop has also supported the recent run. I remain a long-term coffee bull with a target of at least $2, but it is time to relinquish profitable long positions and play some puts for a 20 cent retracement.

Skyrocketing cocoa prices have been supported by mid-day recoveries on selloffs, suggesting there are plenty of buyers waiting to buy the dips. Buying long term puts to play to pullback is worth a small position, but this market's head of steam may still have some uphill climbing left to it before giving way to profit taking.

Cotton's run is a bit overdone considering the rationale is acreage concerns that may not be as bad as predicted. We are likely to see a pullback ahead of the planting reports due at the end of the month. We will wait until Thursday and scoop up some puts on the cheap.

Sugar prices continue to gain as India's supplies may come in under estimates and oil prices set fresh highs. The reality is that sugar is not a bull market, but rather one that has set a long-term top and a long-term bottom and is now finding a mid-range as the market sees the light at the end of the tunnel for unloading this huge inventory. India did cut its subsidy program short by 7 months and will likely cut off the critical subsidies in October, signaling a potential top in the market near term. Perhaps an even more important reason for a top in sugar prices is the strength seen in indirectly inversely correlated markets like cocoa, which incorporates sugar usage in end user products. The extreme prices in markets like cocoa may diminish global demand for sugar, which is holding out some serious hopes that massive demand will be seen for sugar ethanol.

OJ is finding some price support at value levels despite strong crop numbers coming out of Florida. This market is flying under the radar and is ready to pop as we approach a critical hurricane season. We will look to buy into this market ahead of the seasonal turn.

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.