It is difficult for the oil spill news to become relevant to energy sector price action because market participants are not completely sure how to assess the impact on prices long term. In reality there is still no end in site to the negative news, but the lack of definitive assessment of the impact means that it is a net non-event for the time being. Summer driving demand is upon us and a warm summer means potential demand spikes for RBOB and natural gas. I remain bearish all energies except natural gas as the weak stock market will likely pressure oil prices. Continue to play long nat gas against short crude oil (1 to 1 ratio).

Financials

The stock market rebounded last week after plunging the previous Friday on negative jobs data. Take the bounce as a chance to get short as I believe another wave of selling is coming shortly. Keep a close eye on the next two days as a negative close (preferably Monday) will signal more downside or a chance at near term congestion. Bonds remain a buy off the employment report and bearish stock market outlook. The dollar continues to chop around near critical long term pennant resistance but I suspect it breaks out in the next few weeks and runs to around 91. The Japanese yen remains a strong buy. The Canadian dollar bounced on good housing news and a general positive outlook. On a chart it is brushing up right on critical near term trend line resistance and I would use this technical gauge to determine the trend going forward one way or the other.

Grains

Grains are all about the weather this time of year and in Canada they are getting some bullish wheat news from very wet crops. Overall the grain markets will be driven lower, however, by a strong dollar and weak stock market/global demand outlook. When everyone starts hoping that China demand will offset strong supplies then you know we are in for a brutal couple of months. Rice is worthy of straight calls to play discounted volatility premium and the exposure to a global demand spike.

USDA Rant

The USDA came out last week and said that increased ethanol production thru the month of March will spike demand for corn. I am sorry but this is tantamount to saying that travel to Europe will increase in the second half of the year because of the weak euro currency. What happens if the euro rallies, or Icelandic volcanoes erupt, or war breaks out, or a global depression hits? So you are saying travel is currency dependant? So you would say corn inventory is ethanol demand dependant? And even if you can say that then how can you say corn will have tight supplies because we expect the surprise ethanol production that occurred in Q1 to continue for the next 6 months? You can't. The USDA just overstepped. Seasonal demand happens all the time and ethanol is no different than any other market that is susceptible to it. So what happens if ethanol demand over the summer isn't what they thought? Well there goes the corn market plummeting on a poor guess-o-rama by the USDA.

Meats

Hogs and cattle both have very ugly chart patterns suggesting lower prices ahead. Cattle in particular has a nasty daily chart that needs a fresh low and close below Friday's low to confirm further downside momentum.

Metals

Gold continues to see large foreign buying on a flight to quality as the concerns over the euro currency remain. Gold is an irrational market as far as its correlation to other market activity, but this divergence is not necessarily bearish. When the market walks out on gold it will be an historic price plunge that makes long term puts worth having in the portfolio, but in the meantime anything is possible in this market condition. Silver on the other hand is way off the highs in anticipation of a let down in gold, therefore it will need to play catch up if gold presses higher. Copper is hoping that recent numbers out of China will boost prices as global demand may be better than recently believed, but I would discourage anyone from buying into the numbers coming out of China and recommend shorts in this market.

Softs

Coffee broke out on Friday as the option expiration, large robusta contract roll and concerns over a Vietnam supply squeeze has short covering rally written all over it. Monday is key to see follow through. The market has the potential to straight spike to just about any extreme price point (160?, 180?, 240?), but needs momentum and follow through from Friday to confirm. I would recommend buying dips with futures along with put protection. Cotton remains a low acreage bull play. Cocoa is a strong sell with what I believe is a clear top on a technical level and little to justify these prices on a fundamental outlook basis. OJ is a sell on this bounce with a move to 128 expected shortly. Sugar is due for a run to 1900 as the market congests near recent lows. Buy calls to play a volatility spike. Lumber remains a strong buy ahead of euro currency support.

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.