Energies
After the largest one day price move in the history of U.S. crude oil futures we have no choice but to take a step back and look at what is really going on here. First, I have been a bear, am a bear and will be a bear in this market. Now it is very unhealthy for a trader to be married to a view on a market, but every once in a while a market sets up a structure that makes it impossible for the viewpoint to change without a serious shift in the supply/demand structure. In the case of oil the market is so far away from the proper price association with the supply and demand that exists in the marketplace that it is clear to me that there is fund and spec buying that is over inflating price. It doesn't hurt the bull's case when Israel is talking about bombing nuclear sites in Iran, oil inventories over the past two weeks are showing shocking draws and it is about 1000 degrees outside across half the country.

I relate it to a rubber band that is stretched to a point that it either snaps back or breaks. This market's volatility expansion on Friday is something that I have been anticipating for months - to the downside! However it is not without logic to expect upside volatility and price exhaustion before a severe correction. It makes little to no sense at this point to attempt to call a top or to time a selloff. Bear put spreads are ideal trades in this scenario because they reduce upfront cost, define risk and offer a solid risk to reward ratio if designed with that intent. However if volatility is in fact going to expand to the downside then the right play is a simple straight put option with loads of time to expiration and very, very far away from the current market price to benefit from expanding volatility premium.

Financials
The stock market got blasted on Friday as horrendous employment numbers rocked the market's perception of a stable recovery from our current recessionary environment. The monthly employment numbers are often revised, and I suspect that next month's report will show an upward revision of this report. However, this Friday's plunge is a great gauge of the volatility and price action one should expect to the downside as the true economic disaster we are facing is fully realized by the market. Monday will be a key day in this year's outlook for the stock market. Follow through from Friday's collapse means an ugly time ahead, but anything close to a full recovery means this market is supported by forces beyond what logical thought would suggest.

Bonds are choppy as they should be. The Fed supports lower bond prices as a lack of motivation to continue to cut rates generally means that the Fed's focus turns to when they can begin to hike. The stock market weakness suggests rising bond prices as a flight to quality ensues and the inverse correlation between the two markets is exacerbated. This batting heads environment will ultimately end in some serious volatility, but the interim period allows for premium collection in what I see as an over inflated bond option market.

The dollar took a hit on Friday with skyrocketing oil and a stock market selloff/bond rally. The Phillips curve is based on the idea that a reduction in unemployment, by its very nature, creates inflation due to rising wages supported by the reduced supply of available job seekers. Friday's report, showing rising unemployment, should ultimately offer reduced inflation and a stronger dollar. However, the current focus is on the economy and the strength of the economy is certainly in question, therefore the dollar is seeing a setback. It's unfortunate too as the technicals look bad after a failed test of 74.00 resistance on the dollar index. This dollar bull says it may be time to stand aside until the dollar clears 74. The euro and pound are catching a buying wave on the dollar setback. The Canadian dollar made a solid break and should test 9675 - a critical area to break to create a long term trend reversal. While this is not a very tradable market, the Mexican peso appears to have broken out of what feels like a nearly permanent channel against the dollar.

Grains
The mega rally in crude set the stage for some serious follow-through from Thursday's bounce. The charts have all turned bullish in grains, complimented by corn's breakout to fresh highs and soybean's breakout of its recent range. Extreme weather, Argentina strikes and rising commodity prices are pushing grains higher. Monday is a critical follow through day with a focus on wheat to hold its 'whip' bull pattern by setting a new high over Friday's move. Rice is holding, but it is unlikely that the market will test the highs, thus a sell recommendation is still in place.



Meats
Meats turned bearish as expected this past week, as supply takes over the reigns and forces prices to retrace. Rising grain prices holding prices up, but I expect a strong selloff in both cattle and hogs in coming weeks.

Metals
Metals surged on Friday as the dollar broke and the stock market selloff brought a flight to quality demand. Gold remains in a wide 100 point range between 850 and 950 and should be played opposite as it approaches either side. Silver should follow suit but copper remains bearish.

Softs
Coffee volatility is expanding as the market decides whether to break 142 or 128. Regardless of the short term breakout from congestion I see coffee making an epic move and quickly retesting 170 before year's end. The Brazilian harvest should help the bull's case as the expectation is unlikely to be less than the real numbers. Cocoa is technically setup to test and break the highs, something I have believe will be short lived and worthy of put buying if the market has it in it to hit 3350. Cotton appears to have potentially set a bottom with critical support on Dec. above 7150. Acreage is so low and weather is so volatile that this market is unlikely to stay down for long. OJ set a nice bull pattern with momentum. Look for a move to 140 in short order if we break through 124. Crop rotation in many countries away from sugar, especially in India, may lead to a cyclical supply shift and support higher prices. Unfortunately for the oversupplied sugar market this may take years to realize.

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.