Energies

After months in a congestive channel, oil finally broke out to the upside and appears to be experiencing some strong buying from some funds and specs. There just does not seem to be anyone coming in and selling this push and that could mean a big move higher for oil and its derivatives in coming months. We are approaching summer driving season, consumer confidence and hopefully spending are on the rise, and of course there is always the geopolitical and hurricane risk.

Financials

The longer the stock market takes for a short covering price spike (let's say 50-80 points on the S&P in one day, for example) the more likely the market will experience a momentum failure and price retracement. I remain a bull and I do expect strength in the market, but the volatility event I have been waiting for is necessary to catapult momentum. It is unlikely the market can sustain an uptrend from here without a more vertical technical pattern. On a fundamental note, the economic reports are showing solid bottoming action and analysts have set earnings forecasts so low it is hard for some of these stocks not to offer positive surprises. Bonds remain bearish with a target to 118 on the 30-year.

The dollar has seen its highs for the first half of 2009 and possibly a bit into the second half. I remain a dollar bull long-term but the current setup just screams retracement, so as opposed to trying to find opportunities during a brief reversal I suggest standing aside from the dollar, euro and pound. The Canadian dollar has broken back to the upside after a long price retracement from 110. The current move looks to have some legs to it and I would not be surprised if we hit 90 or 92 before it exhausts itself. The peso remains bearish, reeling from the swine flu and a host of other issues. The economy there is dreadful and there does not appear to be anything positive on the horizon. Take the recent bounce to sell a potential head and shoulders pattern with a stop at 80. Japanese yen buyers beware though, as a move to 92 in the near term could come as a shock to most bulls, and offer a great volatility play to the downside.

Grains

Grains continue to show technical and fundamental signs of a rally in 2009. A wet Indiana sets up late plantings there, a cool Iowa is causing a late germination and overall corn plantings should not be seen as anything other than a bullish supply side view. Wheat crops are even looking a little light and beans continue to lead the way for the bulls. Rice might get hit hard with a flood of supply from excess India crops as they await the removal of an export ban there, likely to see some political help as early as the end of the month.

Meats

While it is likely swine flu in 2009 will go down as a media-hyped panic, the net reality is a global shutdown of pork exports from the U.S. This plunge in demand is going to take far longer to overcome than the virus or the panic itself and will likely create a bearish tone to the pig sector for months to come. Cattle on the other hand is seeing some demand increases and with a potential grain rally ahead the input costs may push prices higher.

Metals

Some recent news of mining slowdowns in gold and particularly silver has sparked the metals after months of dying volatility and sideways trading. I suspect this is the last great effort in 2009 for a run to fresh highs, but I believe it will be short-lived. If anything, this price expansion sets up the volatility to downside I discussed last week and a better entry point, for that matter. Copper remains overbought and a sell at these levels.

Softs

Coffee continued to show signs of breaking out to the upside and I am anticipating a major bull run here over the next few weeks. The USDA dropped its forecast for India's production, not that India is the make or break producer for coffee supply. Cocoa remains choppy, however long strangles are recommended to play a breakout - preferably with a bias to the put side. Cotton should continue to rally as the lack of planted acreage globally and government subsidies sets up a fast cycle shift for this commodity back to the upside. Sugar is in breakout mode and could see more upside as forecasts for global supply deficits continue to widen. OJ is benefitting from a seasonal and value buy during a period of worsening drought conditions in Florida. Buy the dips. Lumber remains a buy.



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.