Energies

The energy sector has suddenly become the forgotten news story as the economy and even the election take center stage. Meanwhile oil prices have rebounded about 20% off the lows as declining supplies and recent hurricane weather has hurt production out of the Gulf of Mexico. I expect crude oil prices to make one more push higher before congesting between 120 and 90 through year end. Natural gas remains a solid bull play as it has not rebounded with the sector and is showing discounted call premium ahead of a seasonally bullish time.

Financials

The stock market has exploded with volatility, marked by the limit move rally following the announcement of the government bailout plan. Then the politicians got in the mix and put a damper on what was a bold, albeit socialistic, plan. Heading into the weekend it appeared to me that this was political positioning at play and that a plan will get approved. Therefore I am a believer that the near term bottom in the S&P has been set and the market will surge on the news. Moreover the hedging of funds in the S&P will need to get unraveled and that means a significant buy back of shorts once the government ends the short selling freeze. Bonds are reeling off the highs as the Fed's stand on additional rate cuts took the market by surprise. This market remains in congestion, but with a wider range to test on both sides. Bonds will be entirely dependant on stock market movement until this bailout gets resolved one way or the other. The dollar took it on the chin as well after achieving a spike high top off this strong upswing in prices. The dollar is also likely to congest for the next few months, with a 75 low and 82 high for the anticipated range bound action.

Grains

Corn turned bearish on Friday's breakdown but overall the market is exposed to a strong harvest time rally and could bring the whole sector along for the ride. Buy the dips in this sector with straight call plays or bull call spreads. Rice remains a sell at current levels with straight puts.

Meats

Declining supply, below analyst forecasts, and expanding demand channels makes cattle a short term buy despite my longer term bearish outlook. Expect a pop in prices to follow a grain rally and then jump short with long term puts and wait for the crash. Hogs are also a short term buy following my 66 target being tested and the price support that followed.

Metals

A volatile gold and silver market took a little break this week, or at least a bit of a dip in volatility. The dollar is unlikely to see further lows on this retracement and that puts a damper on the bulls hopes to see follow through on gold's big move. Options remain very overpriced and this is fast becoming a sector not worth trading. The trend is unclear, volatility is unpredictable and options are overpriced - sounds like we need to look elsewhere for opportunity.

Softs

Cocoa is catching a bid as we approach the key cocoa season in the Ivory Coast which begins over the next few weeks. Wet weather could hold up the season a bit but overall a good start should force a big selloff in this market. Position yourself with long term put plays to stay exposed to downside volatility. Coffee is choppy but holding long term trend line support. I am a buyer at these levels with futures, bull call spreads and ratio breakout spreads. Cotton is technically ugly, and it is capable of significantly lower lows, however I am contrarian here and expect a long term rally to ensue from these levels. Long futures with put protection are recommended. Sugar is rallying but a quick look at the chart shows this market is in a congestion pattern that suggests selling not too far away. OJ continues to slide and I continue to recommend dollar averaging into a long position.



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.