A quasi holiday week ends on a strong note for stocks and commodities suggesting my recent price forecasts are a bit off, or at least poorly timed. I am not a sugar coater so there is no way to look at oil breaking out, gold setting new contract highs, and the S&P approaching 1100 and say anything other than the markets' turned the other way. The question going forward, however, is whether or not this move is the real deal.

The way I look it is from the perspective of historical congestion periods. In many circumstances throughout history there are periods of broad based price congestion which tends to indicate either a pause before a correction or a continuation of the trend - this is obvious as outside of continued congestion there are no other alternatives. What tells are there of a correction occurring as opposed to a continuation? In this case I saw many indicators that the breakdown in commodity prices would occur ahead of any breakout to the upside through the congestion. However, is it really so far fetched to see the market breakout with a fake out after such a long period of price congestion?

The primary basis for my recent forecasts was almost entirely fundamental in that the economic recovery seemed very much setup for some bumps in the road that would put pressure on stocks and commodities. I have discussed this aspect at length for several weeks so I will avoid the redundancy.

The secondary indicator was the relationship between the fundamentals and the techincals. For example, if the economy was in fact on the road to recovery than why would the S&P congest between 980 and 1050? Was it merely a pause before the next big breakout or was it more likely the idea that the market is not convinced higher valuations lay ahead in the near term? The mere statistics of the recent recoveries in oil, stocks, and the euro all point to exhaustion. These conditions appeared (and still appear) to be overbought and exposed to fundamental shifts in sentiment.

So while I am not much for beating a dead horse the recent technical breakouts in stocks, gold, and oil all appear to crisp short covering rallies after a period of congestion, and without fundamental 'oomph' to push through. Therefore I expect a retracement of the last week's price moves this week to confirm continued congestion. The next two weeks, more so than any two weeks this year, are critical in determining the long term trend. If follow-through occurs in those three critical markets then the trend may have in fact changed in the past two weeks. However, a congestion pattern after a critical breakout would be very bearish, and this is what I expect to see start this week as the markets erase much of their recent moves.

Energies

I expect technical resistance at $80.50 on Dec. crude oil. A bullish shocker of a gasoline inventory report last week I suspect will be a one week anomaly that will not repeat this week.

Financials

1100 on the S&P is my critical mark and I do suspect we will close above that price in 2009. Bonds remain a buy on dips. The dollar, as my readers know by now, has been getting beat up in contrast to my forecasts for strength. The reason for my forecast that:

The dollar will hit 86 before it breaks below 70 or I will stop writing the Weekend Commodities Review... forever.

is based on the long term fundamental view of a choppy economic recovery and a lack of inflation in the dollar. I equate this forecast to an investment in Chicago real estate should we have been awarded the 2016 Summer Olympics. History would suggest that real estate in Chicago and the surrounding area would rise as massive funds and global awareness came to Chicago as we headed into the Olympic Games. In this example if you bought real estate this year and the real estate market dipped through Q1 of 2010 would you assume your long term view on this is now fundamentally wrong? In the same light I chose my key technical point of 70 because it provided a much wider barometer of a long term fundamental difference compared to my outlook. If the dollar penetrates 70 than this is no short term imbalance, at least in my book. However, in between current levels and 70 lies a great opportunity, one that benefits from recent price declines in the dollar to get short certain commodity sectors and currencies like the euro and pound. The yen remains a very strong breakout buy.

Grains

A weak dollar and rising oil prices helped to boost grain prices as expectations for strong global demand get hyped up during harvest. Bottom line is lots of a supply and questionable demand means weaker prices ahead.

Meats

Sell any bounce in cattle prices. Look to see a close above 55.40 to really confirm a move in hogs.

Metals

Well there isn't much to say here. Gold made its breakout move, set fresh contract highs, and took silver along for the ride. I expect the market to test 1000 within two weeks to fill in the chart for a bearish congestion pattern.

Softs

Coffee is strong but unlikely to break 150 in the short term if the dollar fades this recent currency action. I remain long term bullish. Cocoa remains a sell with puts. Cotton continues to be a strong buy. OJ has broken out to the upside and the sky's the limit, but the short term pattern is going to be tough to see the market sustain momentum. Sugar is showing one heck of a congestion pattern near the highs and is likely to breakout to the upside with continued short squeezing.

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.