After a two-week holiday hiatus, the Weekend Review returns to a breakout bull commodity market that is surging despite this recent U.S. dollar rally. I hinged a lot of my commodity forecast on the dollar rally, but also because I expected stock market weakness to come from global economic concerns, which creates a three-way correlation scenario where stocks and commodity prices trade in tandem while the dollar trades inverse. However, while there is growing concern in Europe that is pressuring the euro currency and boosting the dollar, there is little stopping this stock market bull run. A strong stock market should help to increase investment in ETFs, managed futures and other commodity based stock investments. The stock market's effort to thwart growing interest in futures trading has actually reduced the functionality of commodities as an asset diversification from stocks. I say this because certain commodity-based stocks must buy either the physical or the futures in a particular commodity as the price of the stock rises or as demand creates new shares or IPOs. This also should apply to the downside as stock market weakness lends itself to institutional and fund liquidation of commodities and futures. I believe the dollar has one more push in it before the end of the year, likely to 83, and this next push will be supported by a collapse in the stock market.

Energies

Crude oil continues to remain both volatile and consolidating near the top of a bull move. While supplies remain ample and hurricane season has passed, there is still strong geopolitical premium built in from the Korean conflict. Oil, or the energy sector as a whole, appears significantly tied to the global economic outlook. This outlook should weaken as continued troubles in Europe wreak havoc on market sentiment and consumer buying habits. This can have a long lag effect on stocks but tends to have a more immediate impact on oil prices as global demand shifts cause immediate relaxing of forward contract demand. Essentially the logic is that a user is unlikely to arrange 2012 delivery of oil now if he sees global demand on the decline, thus reducing buying demand.

Heating oil and rbob both have some real downside potential in coming weeks, and I recommended buying puts in either of these markets near term. Natural gas continues to be a call buying opportunity, long term, to play volatility there.

Financials

The stock market offered some serious resiliency amid a weak jobs report and declining housing market. It appears to me that foreign buying demand from money flows out of Europe could be a catalyst for some support, but rationalizing who is buying is not really all that important - bottom line is the S&P500 is technically very bullish heading into a very bearish fundamental event. Due to the capital gains laws dramatically changing it will be logical for some investors to accept their tax liability on profitable positions prior to the end of the year. The difference in claiming a gain on December 31st of 2010 and claiming it January 3rd of next year could be significant and investors are encouraged to see their accounting professional to check out their options prior to the end of the year. The stock market is at the highest levels of the year and therefore this tax issue will affect just about everyone. I suspect this will cause a bit of stock market collapse at the end of the month and strong rally on the first trading day of 2011. It is not often that so far in advance one could identify a massive volume surge one way or the other, but in this case there is a good possibility of this event taking place and it is important to prepare for it. I believe this will limit upside in the stock market this month and put the kibosh on the recent rally. Bonds remain choppy and are unlikely to sell much further this year as the Fed is not expected to make major moves before January. I still expect this bounce in the dollar to run the index to 83, making a sell on the euro and pound recommended. The Aussie and Canadian dollars are both sells. The yen remains a long term buy, with bull call spreads recommended on dips. I continue to stand by my forecast that:

The Japanese Yen futures will hit 140 before 80 or I will quit writing the Weekend Commodities Review.forever.

Grains

Grains surged higher the past two weeks as concerns over global demand needs and crop issues in wheat Down Under have brought some major buyers back into the market. It is hard to deny the bullish technical shift the market has made the past two weeks, and the powers that be seem to want inflated grain prices for the time being. I do not see the fundamental reason for prices to be this high, and therefore cannot recommend jumping on the move. I recommend put ratio frontspreads in corn and wheat.

Meats

Rising grain input costs and general commodity euphoria has helped to get cattle out of a choppy range and into fresh near term highs. I believe there is little upside potential in cattle and would recommend using the recent move to dollar average into long-term put positions. Hogs have developed a slow uptrend that is far from impressive. However, this market lacks an interesting setup and therefore it is an avoidable market.

Metals

Gold and silver continued to surge higher despite a rising U.S. dollar, suggesting concerns over European debt lend itself to rising inflation more so than the minor near term gold price rise caused by the strength in the dollar. I believe strongly that the market has this one wrong, as inflation from low interest rates and sustained economic weakness is not proven when global economic weakness is present. If one country, let's say the U.S., was pumping money into the system and experiencing economic weakness with sustained low interest rates then one could easily say that the U.S. will likely experience price inflation through the dilution of the currency. However, when the world is experiencing similar issues then how can inflation really occur? Price inflation is relative to global input costs - if everything is inflating at the same time then in essence nothing is inflating and prices remain normalized. Of course this is not a perfect statement, as certain countries will perform better and need less money to survive the recession. Of course there will be more money in the global system. However, in the end the global concept should prevent real inflation as costs of goods and services move in relative lock step around the world. If inflation fears diminish then gold and silver will likely collapse as inflation hedge instruments. Look for the next dollar push, coming this month, to shock gold and silver prices lower. Copper remains a sell on expectations for a global slowdown.

Softs

After a year to remember for coffee bulls like myself, coffee sits in a precarious position. A short covering rally could spike coffee to 230, but this would be short-lived as coffee is unlikely to sustain $2 prices for long. Cocoa remains choppy and range bound, setting up a strong selloff in coming weeks. Cotton is trying to accomplish a repeat rally unlike anything I have seen in over a decade. Typically when a market reaches epic highs and then crashes down, it is often all she wrote for that rally. However, in the case of cotton it is getting a second life with impressive upside volatility. Should a secondary top be set below the previous, which is likely, the market volatility to the downside should be extreme. Put buying is recommended to play the volatility pop to the downside. Sugar is a sell with puts. OJ is likely in a long-term consolidation pattern, with any downside bias I might have being offset by seasonal frost exposure. Buy lumber on the dips for a long term cycle play to 350.

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.