Energies

Choppy energies showed a nice rebound on Friday and are likely to run higher as the stock market supports early in the week. Supply cuts should out way demand dips in 2009, leaving the market vulnerable to a plethora of potential supply squeezes. Long term bull plays are recommended across the board.

Financials

Stocks are on a clear path to test the 2008 panic lows, something I felt was unlikely because the current panic just feels far less exposed than the one in 2008. Maybe I am oblivious to the fact that investors feel there will be a run on the banks, but it just seems unlikely to me at this point. I can completely understand that the new administration is doing little to calm fears, but that is short lived in my opinion. The market may test 700 but to me there is little downside here, and a great opportunity to buy June and Dec. S&P call on the cheap. I guess there are a lot of buts there, but I think the buts will beat out the bears in the intermediate term.

Bonds remain choppy and the premium collection opportunities have been solid. This opportunity remains but with considerable risk for a price failure in bonds in coming weeks. Look to sell calls on bounces, otherwise avoid the put side until a move to 120 on the 30yr.

The dollar continues to exhibit strength as the euro is likely on its way to 120. The pound/euro spread should be favorable to the pound in coming weeks. Yen action is very bearish, as expected, and should press 98 by the end of March. Keep in mind this market is playing catch-up to a topped bond market and a reversal of the unwinding of the carry trade. The Canadian dollar may look bearish but until it breaks and closes below 7670 there is nothing to trade here. The peso remains a rarely traded currency but is still exposed to a potential bear collapse.

Grains

It is time to have our annual grain chat ahead of plantings later this month. Last year was truly historic. This sector showed just how susceptible it was to a demand spike. Normally this market sector is used to rallying off of a supply shortage, but 2008 brought in fund buyers and ethanol producers and eventually became a year marked by global grain shortages. 2009 is going to be very, very different. The market is caught in a quandary. Prices have tumbled back down by as much as 60% in some contracts. Does a farmer plant with high input costs at reduced selling prices? What should he/she plant? The demand for corn ethanol is widely expected to falter. There is even a movement away from corn syrup in soda underway. In countries like Brazil there are enough alternative commodities to plant that the focus may not be on grains in 2009. I cannot remember a year setup quite like this. We have retraced just enough to keep plantings exposed to a supply shortage come summertime. The bear move we are seeing was anticipated and is a great early spring shakeout. Look to buy corn at 3.20, wheat at 5.00 and beans at 8.00 for long term bull plays. Give it a week or two to get us in at those levels, and we can reevaluate if the bottom happens sooner.

Meats

The meat industry is evolving. Cattle supplies are slowly disappearing as ranchers were so exhausted by feed costs and general expenses in 2008 that 2009 may see a considerable difference in the supply model ranchers implement. Oh, and let us not forget the increased oversight in production and exportation. I suspect we are on the cusp of cycle shift. This may take years to materialize but there is something to be said for the longer term cycle change. In the meantime meats are getting pounded a bit and are long overdue for a price correction to the downside after years of staying above the historical mean. After all, this market needs to test the downside before ranchers truly throw in the towel. Hogs remain a buy at these prices.

Metals

A nice top in metals was put in last week, at least for the moment. Gold broke briefly above $1,000 and then said adious-ga-bye-bye. Longs are getting stopped out on the way back down, and anticipated support at 930 was penetrated intraday. Look for a break back below 930 to signal further downside in gold and silver. If gold is breaking with the stock market setting fresh lows you would have to wonder what would happen if the stock market bounces back..hmmm.

Softs

Coffee should support here, above recent lows, as Vietnam continues to revise downward its supply forecasts. El Salvador is doing the same. I suspect Brazil will as well. The supply side of coffee is very bullish to me and the demand side is not all that bearish considering the world economy. Major retail coffee companies have chosen to lower prices as opposed to maintaining profit margins to pressure demand, thus helping to support consumers during tough economic times.

Cotton is a buy despite a bear side piggyback on the recent grain price declines. Reduced acreage and global planting cutbacks are likely to make 2009 a bull year for a quick cycle shifting cotton market. Buy long term bull positions now.

Cocoa is on the decline as expected and should test 2000 this month. Lumber remains a buy. OJ not only presents a value but a massive marketing campaign by the Florida Citrus growers and a separate campaign by Tropicana should help to support demand in 2009.

Sugar is impressive so far this year. The market is holding up despite a commodity selloff due to stock market declines and general fund liquidation. Pepsi's move to develop a new product made entirely of cane sugar should be seen as a potential trend change worthy of a close look by sugar traders. The move away from corn ethanol is another big plus for sugar. Global cutbacks on supplies after two years of major carryover inventories also bodes well for this commodity in 2009. This is a market to get bullish with long term, and to grab any dips as buying opportunities.



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.