Energies

Oil is in a consolidation mode and it would surprise me if we broke to new lows on this dip. Buy the dip and play the rally to 55 in coming weeks. Overall option premiums remain extremely overpriced, but not worth the exposure to sell calls. Puts remain solid premium collection plays on $2 plus down days, about 15-20% out with a month or so to go. Natural gas is a buy here with straight calls to play a volatility pop.

Financials

Stocks are testing the lower end of a range I expect to hold up for a few weeks. Buy the dip with stops below 796 and play the run back up to 900. Bonds are selling off after setting an epic high, but the market is likely range bound with the Fed's stand pat stance on interest rates. This means selling puts on down days and legging into calls if and when the market bounces to about 132 (on t-bonds). I like selling 120 March puts with the market around 127 for about 35-40 - way overpriced by my views on this market. The dollar got its nice pop to start the year and many think it will consolidate here and offer the euro a bounce - don't be fooled! This market is about to stage a strong rally and force the euro to 120. The yen is holding on just beneath an apparent double top, despite the 10% plunge in the bond market which it had been trading in correlation with until recently. The Canadian is congesting and not worthy of a play until it breaks out of this range one way or the other.

Grains

Grains are likely to tumble hard and fast over the next two to three weeks as this pre-planting period is not going to offer the bulls the fundamentals they need to rally this sector. Instead look for a failure on this congestion pattern and a strong break. Continue to buy puts across the board.

Meats

Cattle is likely to see a pop off the cattle on feed report from Friday, which is showing a potential trend away from U.S. cattle production. Is it possible that the grain rally of '08 put such a bad taste in ranchers' mouths that the meat industry will never be the same? Time will tell I suppose but it will interesting to watch the inventory reports in coming months. In the meantime sell the rally as grains are set to tumble and will take cattle with it. On the flip side hogs are supportive near these prices and not worthy of a sell position. Either buy it or stand aside, the latter being my recommendation.

Metals

A surge in gold and silver comes amid a global banking crisis flight to quality rush, but the coming strength in the dollar will likely destroy these rally attempts with significant selling well below the '08 highs. Puts remain pricey by my standards so that leaves us with three choices for trade design - short futures with wide stops above the '08 highs (ouch!), do a synthetic spread by selling a June 1100 call and buying a June 800 put (you can also do a bear call spread and a bear put spread to define your risk), or a bear put spread (little pricey still). Silver is offering the risky short term play of an $11 put for $600 or so, which is not a bad way to go if you can handle the short time frame. Copper remains a value buy but is a very difficult market to play.

Softs

Coffee is congesting near the highs and may be choppy in the short term but overall is setting up a move to 129 in short order and eventually 140 and beyond. Cocoa is topping and a good short with puts. Cotton is a long term buy, but may see some selling near term if grains take a tumble. OJ is a value buy here with straight calls or long futures with put protection. Sugar is holding off after testing a critical resistance area just above 13 and may be a sell with puts, but the long term trend is still higher as this market makes a cyclical supply shift. Lumber is worth a real look as lock limit on Friday should have some follow through this week as traders grossly overestimated the bearishness of the GDP report last week. This market could run straight to 200.



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.