Energies

Why would oil rally if we have plenty of inventory and a relatively calm geopolitical scene? No hurricanes. No major fund buying. Short covering - maybe. I mean why would you short oil at $40 when it was at $140 six months earlier - for the extra $5? How about bullishness off of the strong stock market and light at the end of the recession tunnel? Sounds more like it. Well those two reasons don't hold up long term, but rather setup a Mound Ladle Formationtm indicating a test of $50 in the near term. Oil can definitely be a long term buy for me, afterall the commodity bull is not over in my opinion. But we have a long time between here and $140 again so I recommend playing the game at hand which is a choppy trader's world. Sell to $50 and then buy it to $65 and then wait for the breakout. Gasoline is not the play it once was and supplies are sufficient in a weak summer demand season. Hurricane threats aside this market is going to have a tough time rallying through summer. Natural gas is a good weather play, but not much else. These supply increases are slowly building record inventories for this market and I would want nothing to do with the bull side for the time being.

Financials

Two steps forward and one step back - a memorable bull market pattern for the S&P that appears to be resurfacing. To me this market is undeniably in a bull trend after a bear crash. That does not mean we are in a bull market. The difference lies in whether we are buying value or expectations and I think at worst it is a little expectation and a lot of value. This most recent dip below 880 was a great entry into a bull run to 1000. Unfortunately the downside to the stock market is simply the risk-reward of buying in after a 40% rally from the lows. I mean who could blame you for salvaging your portfolio of decimated stocks after regaining this much in such a short time? It is that mentality that will make this a choppy rally that many will miss out on. 1100 by year's end is not just possible - its likely.

Treasury bonds offer a unique short after one of the most significant rallies in our country's history. The recent test through 120 has the 30 year set for a move to 102. Remember the interest rate priced into a 30 year t-bond is not the current rate as so much as it is a gauge of future rates. When the Fed appears to be amping up to hike rates bond prices will likely fall very rapidly, setting up a great short ahead of the expected curve.

The dollar is a puzzle for many analysts this year. Many think it should be setting fresh all-time lows with the biggest bailout in history and yet in March it set fresh approximately 3 year highs before settling back into a 4 year mid-range. The chart pattern looks ugly with a head and shoulders bear pattern setting up at least a channel - or is it? The dollar looks to me like it is snaking. Snaking is how I refer to a market that is coiling inside a channel, which is something indicative of a pennant that sets up a breakout but is disguised by a channel and possibly a different pattern like a head and shoulders. Typically when a market is 'snaking' it is actually setting up an explosive move that is normally counter the current intermediate term trend. In this case that means the dollar might just explode to the upside.

Ask yourself a simple question - if you can have your money invested in any economy and feel like the currency will be stable which currency would it be? Which economy is likely to rebound first? Do you dare jump into the wild east Chinese Yuan? I doubt you are buying agriculture based Brazilian Reals. The European run is over. The yen is so overpriced it is destroying their lifeline of an export market. The dollar is the logical choice. The U.S. is the one taking critical action first. In times of crisis people are comforted by action, a normal psychological reaction to a negative situation - you want to get yourself out of that situation so you take action. Well the Fed might be overstepping but few would argue that they haven't taken action compared to say the EU or BoE. That action creates comfort and that comfort spurs investment. Dollar rally here we come.

Grains

Unlike the stock market and the dollar, grains are a bit puzzling to me. I half expected to be able to buy beans at $8, corn at $3, and wheat at $5 sometime in March, but this sector was resilient. Now I want to buy in, but the dollar is about to take off and oil still has some downside so what causes grains to rally independently? I am not one to straight gamble on the weather, but perhaps this is an oil at $40 situation? Maybe the short side just isn't worth it here for hedgers with higher input costs, funds down a ton a cash, and specs looking to play a global economic comeback.

There are some great angles here for the bulls. First, third world countries lost of a lot of planted acreage with higher input costs and a panicked global economy. What is the real global production of commodities for 2009? I would venture to speculate it is under expectations. Second, we got ourselves an El Nino year which sets up some potential weather anomalies. Third, the reemergence of global demand as we come out of this economic meltdown. You give me those reasons and a value buy and I am in with most of my chips, so I recommend buying corn, wheat and beans ahead of September/October corn harvest.

Rice on the other hand is a bear play. There was this massive shortage that caused a global rice panic in 2008, but this is not the case in 2009. In fact India is likely going to unload some rice and there is some serious rice production going on out there. Yet prices are holding above previous long term resistance. Look for a move to 950 and a great put play opportunity.

Meats

Cattle has continued to gain ground after setting a technical three year low, and remember there is a trend away from pork and generally good demand for beef. Supply side shows some real weakness year over year and I suspect this market to be a buy on dips. I just see another 4-6 points not being worth the long play here and would rather wait for a better entry - even if it means missing the move. Hogs had a heck of a dead cat bounce, but I just am not buying the bull suck-in right now. This market is a bear market sustained by long term fallout from the swine flu PR disaster. Expect prices in the upper 40s.

Metals

Gold has tried and tried to penetrate the highs but instead has developed a long term channel below that mark. Meanwhile the dollar has plunged over 10% without as much as a breakout to the upside during that time. That leaves metals susceptible to an historic collapse. I realize I am a bit of a contrarian here but when all the stars align what else can you do but forecast what you see? Strong dollar, weak commodities, rallying stock market and flat to down bond market all scream short metals for the second half of 2009. Copper is an economy play and holding strong. Platinum is a sell along with gold. Palladium may see a bounce from an auto industry that would have a tough time finding a worse situation moving forward - when you hit bottom there is only one place you can go.

Softs

Coffee has been hit hard by declining commodity prices in recent weeks. The Brazilian Real's rally in March, along with reduced supply forecasts in several producing countries and rain issues in Vietnam, surged coffee prices. Buy this dip and play a quick move back to fresh near term highs. Cocoa has held onto a congested price area just below the contract highs. Remember this is an epic price move for cocoa and sustaining prices up here is very, very difficult. It is doing it based on weather issues in the Ivory Coast, but not for long. The crop may be questionable but the gut says the current price support falls apart and this market sees a remarkable selloff in coming months. Cotton on the other hand is supported by low planted acreage and exposure to severe weather in poorly managed cotton farms in west Texas. Net, net cotton could be as much as 50% higher by year's end if we see continued value buying, global support and a helpful run of bad weather. OJ is already flying high on El Nino and hurricane concerns, but don't be fooled into thinking this is a dead cat bounce - this market is on the rise and I recommend buying the dips. Sugar continues to impress with short covering rallies, but be weary of the recent top as that resistance could be stubborn. Get short on a technical play and reverse it back long on a break above 18 and change. Lumber remains a buy on dips with a move to 250 and possibly 270 expected by year's end.

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.