An interesting start to 2009 offered a tug of war with the dollar and crude oil in the year's first full year of action. Expect a real short-term trend to develop this upcoming week with a strong dollar and a non-correlated rally in oil, which will setup some strange commodity activity in the process.

Energies

Cease fire or not the Middle East is heating up and oil is setting a technical short term bottom as it retraces is mega-destructive fund liquidation induced plunge. The dollar is likely to be strong this week and through much of January, but in the end oil will take a leg up to $60 with significant fund buying along the way. Play this move with short put premium, long futures and ratio call backspreads, assuming you can deal with the unlimited risk and high exposure to short term volatility spikes. Natural gas is also a great play with straight deep out of the money long term calls (think June 10s)

Financials

Stocks are on the move back down after breaking out of technical resistance and then back through. This could get ugly, but the gut says there is little downside potential and a lot of buying coming in over the next few months, so take any dip as a futures and call buying opportunity. Bonds are finished to the upside, but downside will be limited as the Fed is stuck on its interest rate policy. It is bullish for the stock market and our economy to see the top in on bonds, but the right play here is to trade a different market until some technical support is seen. The yen should test 106 as the carry trade goes the other way on the bond plunge. The dollar is setting up for a strong week and should rock the euro and pound. The spread on the euro/pound is worth watching as GB's economy is in trouble. This spread is unlikely to tighten further, suggesting a long pound versus short euro (3 to 2) as a great play.

Grains

This is the grain move I was expecting, but there is just something about it - maybe because it is premature in my mind - that doesn't sit right with me. The WASDE and crop production numbers are due out Monday morning and the gut says sell into this move with put plays to shoot for a volatile reversal. Buy beans in three to four weeks at 8.80 or so, but don't buy them ahead of '09 plantings at 10.50. This sector is about to wake up traders and selloff hard, but a crude oil rally might give this sector one last run up this week. If the crop and WASDE numbers are off enough it will ignore outside influences like oil, otherwise this market may get tied up in an energies rally and spike in the short term. Scale into some straight puts now and, as a good friend likes to say, leave a little powder dry for another entry if the timing is off a bit.

Meats

Not enough volatility to collect premium, and not enough action to entice me to play in cattle or hogs this week. I will keep my eyes open, or at least try not to fall asleep watching these markets for an opportunity.

Metals

Gold is setting up an interesting technical formation as it is congesting near the recent highs but under the intermediate highs of September and October. There would be a great play here if the put premiums weren't so pricey, and I am not jumping at selling calls or doing a synthetic short here. The dollar is set to rally which means the best play is puts in the euro and yen, but if you want to trade metals look to short gold at 850 with stops at 901 and 941 respectively. Silver is capable of collapsing to $8 in a blink of an eye if gold fails, so stay away from longs and take a good look at a long shot play with some March $8 puts with a quick trigger finger to exit on a break to $9 by the end of the month.

Softs

Coffee is rallying on a low forecast from Brazil for '09 and a technical bottom. Throw in some low volume buying over the holidays and this market is one move away from a breakout rally. Look for a new high above 120 to signal a major rally possibility and a break above 126 offering a significant momentum factor to this move. Cocoa is a sell with puts. Cotton is a buy with straight calls regardless of the ginnings report on Monday. OJ is looking rather bullish but it is so thin that it could plunge 10 points in a day and look ugly again, so I wouldn't get my hopes up just yet. I still like the market long term and buy the dips here. Sugar is looking solid as corn rallies and oil forms a base, but overall the market is rallying in a non-correlated move as specs move in on a market that may have just made a critical cyclical supply turn. On low volatility days I would pick up some straight calls, maybe some October 16s. Lumber remains a long term cyclical buy at these levels.



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.