Last week saw very little in the way of real price action and set up some congestion ahead of volatility expected this week. I continue to expect a strong dollar rally, stock market decline and weaker commodity prices ahead.

Energies

Crude oil resisted out below the recent highs, suggesting a weak buying interest at these levels without further bullish catalysts. The real story here is the fall of natural gas, disproportionately collapsing compared to other energy markets. I expect support in natural gas on the October contract above 2.90 which is very close to current prices. This is buying time for me with straight calls. Even naked put selling here is recommended for the not so risk averse. When looking at natural gas there are a few key factors to consider that make me very bullish. First, why is natural gas failing? Simply funds are walking away as supplies are overwhelmingly strong. This sounds like the sugar market a year ago when it seemed there would be enough sugar to supply the world for our lifetime and now look at it. Second, how far can it fall before buyers come in? We are down on the October contract over 30% since August 6 and down over 75% since a year ago July. This market is well overdue for a dead cat bounce. Third, when do you go contrarian? When a market is down over 75% in 14 months and puts show implied volatility often at double or higher against statistical volatility. This shows that the market is pumping premium either to use puts to hedge exposed futures or because speculative demand is pumping up the market. This is a green light for me.




Financials

Stocks remain choppy near the highs, but the gut says this week we break below 990. Bonds remain strong and I continue to see upside to 124 on the 30-year. The dollar remains congestive with the euro currency, but this is likely to change in the very near term as the dollar makes a bull run. The yen is worthy of long strangles as the landslide political change creates currency instability in the short term. While I remain long term bearish, it is too soon to tell how strong the new adminsitration will be on export friendly monetary policy. Throw in some China stock market volatility and the yen is likely to see some big moves in coming weeks. The Canadian dollar remains a short at these levels.

Grains

Expect strong downside this week in grains, focused primarily on soybeans as favorable weather and the aftermath of seemingly inflated export demand bring sellers to the market. Corn and rice are also shorts, with wheat the lone long term buy.

Meats

Cattle remains a long strangle play (long term) as this tight trading range should give way before Thanksgiving. Hogs continue to be an 'I think we hit the bottom' buy.

Metals

Metals strength should be sold into as there is nothing here that indicates to me that my forecast for lower metals prices amid a falling dollar stock market and rising dollar has been altered by recent price action. A stronger yen could lead to gold buying, but overall this market is going to get hit by strong metals supplies and a strong dollar. Copper is a sell and platinum should be sold on what I anticipate will be a swift end to the strike in South Africa.

Softs

Coffee could get hit by a weak dollar, but the gut says scoop up the dips as this market is a great long term buy. Cocoa remains a sell as black pod disease is not enough to support prices at these levels. Cotton is still a low acreage and supply side buy. If you are looking for a market that plays an economic recovery then cotton is worth a look. OJ is a choppy buy on the dips. Sugar has broken out and skies the limit. Lumber is a long term cycle 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.