WCR Note: The WCR research team and I will go into our annual hiding as we put together the MEGA 2010 Commodities Outlook and Forecast issue that is released the first week of January. That will make this current issue the last official WCR for 2009. It has been a heck of a year, and I have thoroughly enjoyed writing the report. The 2010 outlook and forecast issue will be a private report available for sale to the public and free of charge to Mound Trade Signals subscribers. This week I will send out an alert that instructs you on how to buy the report at special pre-release pricing. Please have a Happy and Safe Holiday Season!

Happy Holidays,

James Mound


Energies

Crude oil volatility expanded a bit as the market shot down off a strong dollar and strong distillate inventory numbers. Supplies appear solid throughout the energy sector with the exception of natural gas which caught a strong rally after a shockingly bullish inventory report. Energies as a whole are bearish through the upcoming anticipated dollar rally, but expect choppy congestion until we break through to the lower $60s on crude oil (front month).

Financials

A choppy stock week was supported by stronger than expected retail sales and consumer sentiment. I anticipate heavy declines in the stock market for the rest of the year, thereby strengthening bonds and the dollar. The dollar rocketed higher with little economic news to stifle the momentum caused by the previous week's employment data. This is likely the beginning of a major trend reversal. I do not expect this trend to be short term which is why I believe:

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

Many traders seem to ignore the fact that the U.S. dollar is still the world's currency and commodity traders should know this very well as commodities are priced globally in dollars. While it is quite possible the unified strength of the euro may eventually dominate the global currency world, right now it does not. Right now the euro is composed of countries quite capable of economic collapse and the ECB is in a quandary in its ability to support individual countries with economic policy. Think about it this way - the Fed uses several measures to manage our economy. They can use interest rates, float treasuries, increase money supply, and many other tools at their disposal depending upon what is needed at the time. Even the mighty Fed makes mistakes with economic policy and they are heavily scrutinized. The EU cannot implement these same measures because each country within the EU must utilize their own government's policies. That being said, they then lose the ability to have money controls as a tool in their arsenal and the ECB may be making policy that conflicts with an individual EU country's needs. This conflict is something that will have to be worked out over time and that time could be decades, not months or years. The dollar is still the flagship currency of the world and the cycle bottom has already occurred by my estimation. The yen remains a strong buy on dips. The Canadian dollar held the double bottom support it set two weeks ago and is bullish until 92 is penetrated.

Grains

Snow has left some major pockets of corn unharvested and potentially ruined. This does not turn grains bullish no matter how much the bulls wish for it. Grains remain bearish through winter on strong global supplies, weakening global demand and a strong dollar ahead.

Meats

Cattle remains bearish after breaking through the 1 year channel lows. Continue to sell rallies. Hogs remain on strong trend line support but last week expanded in volatility to the upside. This is actually a bearish sign as it may push the market to exhaustion much faster. I recommend short term puts to play contrarian.

Metals

Gold and silver plummeted as the dollar showed continued strength off the employment report. In addition, the general influx of economic data has been surprisingly positive. While gold registered a fresh high in December I believe that actually increases the chances of greater downside volatility as we can test support at 1070 to hold an inside low bar on a monthly chart or penetrate the lows below 1040 and create a double outside month. I am inclined to think the latter is more likely as volatility remains high and the dollar should put a lot of pressure on gold in coming weeks. Silver would be in some serious trouble if this type of action was occurring in gold as the potential to squeeze longs in silver is very high. Sell copper with puts.


Softs

Coffee is developing a very strong bull flag on a daily chart but the gut says there is one more leg down coming before the big rally. Is it worth the wait? Well the way I look at it is you can jump long on a breakout above 150, so no need to think you are value buying at 143 or something like that. Wait and see if we test 136 then get long with bull call spreads saving a little ammo for a potentially lower dollar average entry. Cocoa remains a strong short with puts. Cotton and OJ are buys on dips. Sugar is far from bearish and I am inclined to think there is a call buying opportunity here with a bull breakout around the corner.



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.