Energies

Declining inventories continue to make oil susceptible to weather and geopolitical supply concerns. Crude oil is benefiting from downside exhaustion after falling nearly unimpeded from $147. I suspect most speculators are seeing the recent prices as a bottom because there is a point in which downside profit potential is far outweighed by upside exposure, and we are clearly at that level. That tends to force a short covering rally that, given the enormity of the recent plunge, could be substantial. That being said, currencies remain an important inter-market correlation worth watching as continued dollar strength will put pressure on this sector.

Financials

Stocks plunged further than anticipated, showing some potential for a bottom after Friday's nasty employment report and previous months' negative revisions. The strong comeback on Friday heading into the close is a small piece of hope for bulls desperately looking for a glimmer of it these days. Market sentiment is bordering on the level to which some investors must be wondering whether the stock market will still exist in a few years. I must admit that I thought it was unlikely the market would feel the level of panic it did when the market was at 740 last year, but we have penetrated that level with ease. Anyone who takes a look at a chart will have little choice but to acknowledge that the last true base of support has been blown through and that there is little to indicate support anytime soon. However, for me this is one of the best near term trading opportunities I will likely see in my lifetime. Selling 500 strike S&P puts for June (or even December) and buying 900 strike calls for a massive spread credit is just a great opportunity to play an option skew along with countering speculative demand and bias.

Bonds continue to offer call side premium collection ahead of an stock market rally. The dollar is rallying as expected and I suspect there will be a choppy road to 92 in coming weeks. The euro should test 120 and the yen is likely to collapse to 95 or below, and I would sell into a rally to 105. The Canadian remains stuck. The peso is failing below any recognizable support.

Grains

WASDE and crop production ahead next week setup the last grain plunge before I jump in long head first. I like wheat already at the $5 level, but waiting for 3.20 on corn and $8 on beans, suggesting wheat may see $4.60-$4.70 on a sympathy move. So, short and sweet, downside expected in the near term and I would buy into it.



Meats

Cattle has fallen rather hard, for cattle that is. This is a great washout opportunity to take ranchers and shift the cycle of supply. Over the next couple of months live cattle appears to be setup to stay relatively range bound. Hogs remain a buy.

Metals

Gold's efforts to run higher amid a stock market meltdown have left little to be desired. The market is begging for another leg down and will use a stock market rally to do it. One noticeable trend shift is the somewhat unexpected (by the market) strength in the dollar has seemingly outweighed the significance of the stock market hitting fresh lows. This means to me that the flight to quality indicator is intermittent but the dollar relationship remains consistent. Continued strength in the dollar in the near term and a stock market rebound is a perfect storm to send gold down to 800 and silver to $10. Copper remains supportive but susceptible to a metals collapse. Ultimately copper will run alongside crude oil as both will be viewed as global demand and economic forecasting markets.

Softs

Coffee is getting some bullish press out of Vietnam as smaller yield will ultimately wreak havoc on that supply. I continue to see 2009 as a major supply shortage year for coffee and a great buying opportunity at these levels. Look at July bull call spreads. Cocoa is a strong sell. Cotton is going through a very fast cycle shift and will use 2009 to blast through inventory stocks as it rallies through 70. Sugar is hard to ignore after getting slammed mid-week on fund selling and ultimately rebounding a decent bit from that move. This market is getting a boost from a reversal in the India supply scene as they will likely be net importers in 2009. OJ is a strong buy ahead of hurricane season. Lumber is a long term cycle value play.

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.