Energies
Turkish air strikes into northern Iraq helped spark a rally that has this bear in a bit of a quandary. On one hand the market remains overbought and due for a severe correction as inflated prices due to spec buying has built in $50 or more in excess premium (by my view). On the other hand the market sold off nearly $10 from the highs, or roughly 8%, which has been the typical retracement level during this multi-year bull run. The next two weeks remain key to the long term outlook on the market. The bears must take control here and push the market below $105 quickly to gain momentum and provide a true technical trend reversal, otherwise the bulls take the reigns and who knows where this market could go. That is not to say I have changed my view - I have no choice but to be a bear at these absurd levels - but the short term technical outlook did just get a bit fuzzy. Natural gas remains along for the ride with a bearish outlook despite coming into a seasonal susceptible period.

Financials
Stocks caught a nice bid from the Fed announcement of a quarter point cut and an outlook that suggests a stand pat attitude. After all the Fed does need to see where these cuts have taken them and allow some lagging indicators to reinforce the validity of their actions. However one must question the logic of waiting until it is too late since that is what got us in this jam in the first place. Bonds remained almost motionless off the announcement and only seemed to react the impressive employment report that showed a much better than expected result on Friday. Nevertheless the stock market is setup to fail after breaking through a key short term bull pennant but simultaneously bumping up against some long term trend line resistance. Bonds, inversely, should see a bit of a rally in coming weeks as the stock market takes a bit of a beating.

The dollar continues to rally as the Fed appears right on its path to curb the recessionary issues at hand while simultaneously limiting the rate cutting action ahead of fundamental confirmation. The market likes the setup and the dollar is long overdue for a severe correction. Likewise, the euro and pound should see continued selling. The yen is benefiting from all the goings-on in the U.S. as its currency deflates on the idea that the carry trade is reversing a bit. I expect the inverse correlation to control the yen for months to come - a strong stock market and rising interest rates in the U.S. means bearish yen. However this will work the other way when the stock market sells off and bonds rally, something I expect to see starting this week. The Canadian dollar is bearish but holding above critical support just under 9700. Wait for a break below support to get short.

Grains
Weather appears to be dominating grain prices, something common this time of year. Rain is pushing corn prices higher on the idea that farmers will roll into beans, thus causing a big selloff in the bean market. The reality is that a late planting in corn did not hurt yields last year and I am not sure it is fair to assume it will this year. The rollover in plantings is bearish for the entire sector because it realigns a questionable acreage report from the USDA back at the end of March. Corn did see a big drop in acreage from last year, which was the biggest on record, but that is widely considered to be priced into the market which is at record levels. Look for support in wheat despite a bountiful winter harvest in Canada. Long wheat against short corn and beans (5 wheat to 2 bean and 3 corn) is a good bearish play with an intermarket hedge.

Meats
Cattle and hogs both followed through on bearish signals and turned the recent bull trend into a technical reversal. Look for a continuation in weeks ahead as the dollar strength diminishes export demand while high grain prices put pressure on ranchers to lighten the load. Sounds like we are about to see a lot of supply and no one to buy it.

Metals
The metals broke as expected, shocking most gold bugs as the retracement appears to be more like a correction. The dollar is just beginning to rebound and the Fed's comments on inflation set the stage for a massive plunge in metals. Critical support in gold is broken but a close below 850 would give the market a clear sailing to 800. Copper is holding up as supply concerns and a lack of inventory has the market spooked. This sets up a run to maybe 4.40 but long term this market is a bear play along with platinum.

Softs
Coffee is dollar reactive as buyers ahead of Brazilian harvest are seeing selling come in from producers as the dollar rallies. The Vietnamese export numbers are showing just how bad that harvest was as the numbers are coming in way under last year. Buy Sept. bull call spreads. Cocoa is losing some steam and got rocked on the dollar rally. This market is getting overloaded with panicked buyers running for the exits at the first sign of a reversal, plus a secondary top here would give the market some critical momentum to test the 2000 area in short order. Cotton is tumbling despite one of the lowest U.S. plantings in recent history and is great value buy down here. Sugar is getting beat up as supplies are aplenty but there is value somewhere down here as the volatility premium gets sucked out of the calls. OJ volatility remains high on an intraday basis as it forms a nice technical bottom that I wouldn't trust. However it remains a good value play with seasonal buying coming in ahead of hurricane season. Bull call spreads are recommended.



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.