Energies

An unexpected decline in inventories did little to stop the sector from seeing fresh lows amid a continued fund liquidation of commodities. Expect a swift cycle shift here as a perfect storm creates a sharp bottom. Declining inventories should continue as we approach the Dec. 17th OPEC meeting where additional supply cuts are expected. A cold weather snap is all this sector needs to see $60 in a blink of an eye. Remember this market has essentially broken from $147 to $44 with little to no price support. That means a single leg down in crude has plunged the market over 70%! Buy futures or straight calls at these bargain basement prices, with a bottom likely in or in early this week ahead.

Financials

Stocks offered a quick rebound from the sharp decline earlier in the week, and shook off the worst employment report in recent history (remember next month that these numbers often get revised). The market is likely going to look past lagging economic indicators like employment, which often trails the real economy by about 6 months. Can Obama's rhetoric pre-Presidency save the market? Yes. The market is looking for stability and to be able to say the worst is over and he will give it to them. Well, in my opinion, the worst is over. There I said it. Sure we will have another bank fail or maybe even see a U.S. automaker go under before it is all said and done. However, the likelihood is we will see a government bailout of the auto industry, a declining rate of job loss, bank stability and corporate consolidation create a change in market sentiment. Get long the stock market and short one of the most outrageous bond price moves in history!

Bonds broke out through the spike high from the previous month, but at this point is rallying based almost entirely on a short squeeze and foreign demand. A big December stock market rally with thwart this bull run and turn bonds back towards 122. The dollar remains choppy, a scenario I saw and continue to see as likely through year end. This does offer a short term potential rally in the euro as the dollar hovers near the year's highs. The yen is overbought but is technically difficult to short. Buy some extremely skewed puts which are trading at a discount to equidistant calls.

Grains

Grains fell through any conceivable support and plummeted this week on fund selling ahead of the WASDE report this Thursday. The thrust behind this selloff is undeniably a wave of fund liquidation, but is also being helped by strong Canadian supplies, arguably the best crop in decades. Can the grains support? Yes. When? Now. Expect a huge grain rally through month end, sparked by renewed fund interest and rising oil prices. The focus should be on corn and soybeans, with ratio call backspreads recommended.

Meats

Cattle is getting beaten up by declining demand and fears of a negative demand cycle ahead as the global economy falters. A shift to chicken and pork may in fact occur, but the rise in grain prices that I anticipate will give a big boost to cattle prices in the short term. Hogs should also see some upside in coming weeks.

Metals

Gold and silver have been in a choppy range, following along with a congesting U.S. dollar. This week ahead should mark an important turn in the dollar, where a quick chop down to end the year occurs and supports metals prices in the process. Play a spike in silver with a ratio call backspread and straight calls for a rally in gold.



Softs

Cocoa caught a strong bid as Ivory Coast supplies are shockingly low, but expect that to stall as dry weather helps shift supply and disease issues away from the mind of traders.

Coffee broke through key support but not quite below my bottom support figure of 98 cents. This market is a strong long term buy, supported by declining supplies in Vietnam and a small crop year in Brazil. This market is about to experience a massive cycle shift and a supply shortage - get on the bull bandwagon early.

Cotton continues to get whacked by fund selling despite a global government effort to buy supplies at these low levels. The world is on the cusp of forcing an industry failure which would ultimately leave us with supply shortages for years to come. This political effort to buy supplies, seen in India, China and other nations, should create a floor above 38, and a great buying opportunity even at current levels.

Sugar broke key support and is failing along with corn and oil. A good reduced premium call buying opportunity exists here if in fact we get a late year rally in commodities, which I anticipate.

OJ will be in the news in coming weeks and months as Brazil tries to get the WTO to review the U.S.'s practices against importing supplies possibly boosting demand for Florida oranges. Current supplies peg us at levels around pre-2004 numbers, showing over 6 months of inventory. However, this market is susceptible to frost and I like it as a general value buy after falling hard and fast from 210.

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.