The markets offered choppy trade last week but setup a good topping formation in many sectors. The sea of red I discussed in last week's report is likely upon us and will be signaled by a strong collapse in the euro currency. Look for this key indicator moving forward and watch sectors like metals and energies fall to global recession fears and a U.S. dollar rebound.

Energies
An IEA report released towards the end of the week showed a significant drop in forecasted demand for oil, driven by global recession and tempered usage from sustained high prices. For months I have been discussing why oil will top, and this report is a key fundamental turning point that confirms it. The simple logic is that price does not always follow the supply/demand equation, but an imbalance eventually becomes the reason for a market turn. While the same IEA report showed a drop in supply, it is far less than the demand drop and a good indication that inventory will be on the rise.

Technically crude oil set a fresh all time high only to quickly fall back below the previous highs. If front month oil trades below $105 then the bulls will likely run for the exits in a way that could cause some serious volatility to the downside.

As we head into a critical seasonal period with gasoline demand spiking and hurricane threats looming, the main issues will be weather and travel. Airlines are hurting and this is a great indicator that travel will be diminished if prices remain high, further hurting demand and boosting inventories. An informal OPEC meeting scheduled for April 20th may offer a turning point for this sector.

Natural gas is spiking in volatility despite being somewhat range bound. Monday is a critical trend determining day on the charts for this market and I would expect that a downside break lies ahead.

Financials
The S&P tested the topside of a resistance band and showed its true choppy colors as it plunged back down on news of GE's negative guidance. This market remains bearish with a choppy support. Continue to sell premium on volatile days. Bonds also remain choppy with a slight bullish tone. The dollar remains an underdog bull play as the euro is met with some selling pressure near recent highs. Next week is a critical week in the trend of the currency markets and I would look for a major selloff in European currencies to signal the end to the dollar destruction. The Canadian is a solid short on a break to fresh near term lows.

Grains
A choppy week in the grains shows wheat diverging from beans and corn, but not for long. Expect a dry weather forecast to help get everything planted in time and a US dollar rally to put the kibosh on the grain run. Position short with puts in corn and bear put spreads in beans and wheat (to dodge some of that volatility premium). Rice looks way overbought and could be in for a turn, but they are settling the options a bit high for my tastes.

Meats
Cattle remains completely at the will of the grain markets while staying in a choppy bearish technical pattern. Rising pork production is putting a damper on prices, but a strong surge on Friday may have put the bulls back in control. Expect choppiness to continue as this market is stuck in a longer term consolidation pattern.

Metals
Despite a couple of weeks of slow recovery gold is anything but bullish right now, and is susceptible to a strong correction on a U.S. dollar rally. This little rally feels an awful lot like a gold bug's suckers rally and should be sold into. Silver and copper will likely follow suit. If copper options were a bit more liquid I would recommend some deep out of the money put plays, but unfortunately that market has a barrier of entry for a speculator that will leave a bad taste in your mouth.

Softs
Coffee had a nice rally off of a technical coil formation from the week prior, but took a sharp plunge on a stop triggering selloff that shook a lot of bulls out of the market. This market is not bearish and should be bought on the dip.

Cocoa spiked sharply as renewed political concerns in the Ivory Coast merged with some expectations that offered a bullish take on the current mid-crop harvest which had been experiencing some ideal weather. Not sure what to make of the rally. I expected more downside but this run seems to have some legs to it. A long condor might work well here.



Cotton is choppy after supporting out off a channel line. This market is a good long strangle play as it is unlikely to stay in this area through the summer and premiums have come down a bit since the ridiculous volatility from last month.

OJ spiked but offered little follow through as the supply and demand balance is depressing prices. Buy this dip ahead of the hurricane season - calls are relatively cheap with the kind of volatility that will hit this market if a Cat 4 heads towards Florida.

Sugar is anything but trending right now, but choppy and volatile sets up a long strangle.

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.