Energies

What does a 9.4 million barrel supply increase in a week do to prices? Apparently not much when it is all said and done. The market is on a psychological rollercoaster, torn between Russia and Georgia geopolitical issues, a choppy dollar and a rising supply situation. This market has become dollar dependant. It may appear at times that the oil market pushes the dollar, but with the dollar in the breakout position it is forcing oil's hand and pushing oil lower. With a good shot at hitting 80 by the end of September, the dollar should push oil into the mid-90s. Keep an eye on the weather as there are some impressive conditions off the coast of Africa that could hurl a storm our way, but otherwise this market sector is heading south.

Financials

Continued choppiness mixed with intraday volatility has the stock market building a nice and wide consolidation pennant on an intermediate term daily chart. Look for a little more choppiness even through Tuesday's FOMC minutes and then a September market failure. Bonds are getting some significant foreign buying amid a rising U.S. dollar but should see price resistance under 119 and selling OTM calls is recommended. The dollar fell hard off a short term pennant on Thursday only to rebound nicely on Friday. This market is setting up another move higher, perhaps to 80 or above, by the end of September. The euro, pound and Canadian dollar remain sells, with a weak yen likely in the cards as well.

Grains

This choppy sector remains a stand aside place for me as the trend is no longer apparent and the market is not overly convincing with its rally attempts. Corn harvest numbers look solid and the supply is likely to be the second highest on record, suggesting the flooding and late planting is not worthy of the preceding panic. Overall the grain market is susceptible to another dollar rally, but in general appears to be setting up a consolidation pattern which suggests that there are some premium collection opportunities in the short term for those that can handle that type of exposure.

Meats

Cattle prices remain choppy amid a grain rally, which does not bode well for the bulls. This market is setting up for a fall but may consolidate ahead of grain harvest. Cattle has a long history of setting up breakout patterns but going nowhere. Hogs remain a sell.

Metals

Gold and silver chopped off of their respective lows as the dollar pulled back a bit. The metals sector as a whole, but specifically gold and silver, are hypersensitive to the dollar. For the past couple of years this inverse correlation lacked a day to day connection, but held the overall trend as the dollar fell from 120 to 70. As the dollar comes out of its bottom congestion area between 70 and 74.50, gold and silver traders are more aware of this relationship as gold is priced globally in U.S. dollars. Foreign investment in these metals have been an overwhelming reason for their sustained rallies. As global recession hits and the dollar rebounds the metals are left with nowhere to go but down. Sell the bounces.

Softs

Cocoa is seeing rising demand at the ports but remains a sell as the top appears to be in. Next week will be crucial in determining if the momentum has returned to the bulls or not. Look for a break and close below 2650 to signal the market's true trend weakness. Coffee remains a solid long term buy and this past week's run higher was met with little selling on Friday's dollar rally and oil selloff. This means the market is rallying independently and has an excellent chance at running another 10 points in short order. Sugar is holding its own and diverging from its correlation to corn, which is a change of pace. This market may in fact make a serious rally but I would buy under priced puts and play contrarian here. Cotton remains a value buy as West Texas harvest may not be all the crop everyone expects it to be. OJ is riding a nice technical bottom and is a value buy. Private forecasts peg a significant drop in Florida production for the upcoming crop.



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.