It has been a while since I put out a 'normal' weekend commodities review. A number of readers emailed to ask if I stopped writing the report because the yen hit 80. That is cause for concern because the yen is actually trading just above 118 as of this morning. The Japanese yen futures should read as .0118 U.S. dollars equals 1 yen, while the inverse would be 100/118 or 84.7 yen to 1 U.S. dollar. As the yen goes from 118 to 140 it would be bullish the yen against the dollar, ultimately making the spread 71.4 yen to equal 1 U.S. dollar - something I have bet my WCR writing career on for nearly a year. Rest assured if the Japanese yen futures hit 80 before 140 I will quit writing the weekend commodities review forever. I make this forecast as a commitment to my readers and as a way to show the belief I have in this prediction.

Energies

A bull run in the energy sector continues amid concerns over political tension in the Middle East, Nigerian elections and potential supply disruptions that may ensue. The world appears to be stuck in a trance as it watches the rising price of oil and its impact on the global economic outlook. I believe there is not a more significant gauge of the world commodity picture than that of the Rubber Band Effect playing out in crude oil. For those unfamiliar:

What I believe the markets are experiencing is something that I refer to as the Rubber Band Effect (aka Bungee Jump Theory). I like to view markets as going through cycles of tension. This tension occurs when the bull or bear takes control and ferociously moves price to one extreme. Flashback to 2008 with crude oil approaching $150 a barrel and a global grain/rice crisis - prices were seriously stretched at that time. This extreme pulled that Rubber Band price threshold about as tight as anyone has ever experienced. Then instead of snapping (market rubber bands rarely snap), the markets recoiled, often plunging price at a more rapid pace than when prices were being stretched. What happens after a rubber band stretches and then recoils? It reforms its shape. Within the scope of this reformation is an inner band, a price stretch that retests the outer price points previously reached on both extremes. Typically these tests form lower highs and higher lows. Ultimately this causes a massive pennant price chart formation on a long term basis.

In crude oil this means the market is set to create an inner band below the $147 highs. Where exactly will that resistance form? Typically within a Rubber Band cycle Fibonacci levels tend to work rather well and, with the market above $110 already, I believe the market will top below $120. If crude oil breaks $147 it would essentially destroy this theory, and open the door to a truly chaotic commodity cycle that is beyond my wildest imagination. Instead I would look at this current price move as an amazing opportunity to get short oil inside this range at a level that is about as close to the highs as one could hope.

Financials

If oil is the dictator of the global economic outlook then the stock market is the follower, and yet as oil rises the stock market continues to show strength. In fact, most commodity markets are ignoring the potential decline in global demand and are riding the commodity inflation wave. This suggests the stock market is only correlated to oil during periods of panic. I find it very difficult to be anything but aggressively bearish on the stock market during this overbought market extreme. The stock market decline that followed the Japan crisis shows the market's panic potential and I see the stock market as a filled balloon waiting to burst. Short positions with straight puts are recommended to capitalize on the relatively low VIX. Bonds remain a buy on dips. The dollar is a long-term buy but may experience pressure in the near term. A break back above 79.80 indicates a resumption of the bull trend. The pound and euro are both avoidable while the Australian and Canadian dollars are both in bull breakouts. The Mexican peso is also in a bull trend, but I suspect a top below 87 is likely.

Grains

A massive breakout in corn due to reduced supplies should see strong selling in coming weeks to counter that move. In fact, the entire grain sector should see a strong selloff over the next three to four weeks. The market shrugged off a USDA report showing stable inventories, which was a bear shock to the market despite the lack of reaction. Look for a top this week and bear positions are recommended in soybeans and corn.

Meats

Live cattle's historic price rise should see an epic decline over the next 8 months. Look for a 30-40% decline in live cattle prices this year and a great opportunity to get short with near-the-money puts. Lean hogs also present a selling opportunity at these lofty price levels.

Metals

Gold and silver remain a flight to quality safe haven for those seeking refuge from the Middle East panic. The dollar pullback this past week also helped to bolster prices in silver and gold, both making new highs. Both markets are ripe for a collapse, and this move in oil is a reason to sell gold and silver as it provides a catalyst to a top. Once oil price pressures subside then gold and silver are likely to lose a large amount of fear premium and buying demand.

Softs

Coffee's bounce should be sold into with bear put spreads. Cocoa is expected to sell off heavily after tensions ease in the Ivory Coast and supplies waiting at port are released. Cotton is also a strong sell as the congestion near the highs is an indication that the buying frenzy is over. Back months in cotton are already so inverted that time will ultimately bring prices down simply by allowing the inverted market to play out, let alone if a real turn is seen. OJ's recent bounce should be sold into - the top is in for this market. Sugar remains a cycle shifting short, with a 30%+ decline still anticipated this year. Lumber has clearly cycled to a sell, and recent lock limit down action has this market in a tailspin. A buy at 220 is recommended.

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.