Energies

Bin Laden's killing Sunday night by American forces is likely to be a major catalyst to the reversal in oil prices, despite its indirect affect on Middle East tensions. In fact, it is likely that this week remains sensitive to retaliatory efforts by the Taliban. As days go on without incident it will allow for more and more of a short position development in this sector. A massive build in crude oil inventories last week, over 6 million barrels, did little to stop the bulls, but psychology like this Bin Laden event will have a much stronger impact. Crude oil is fast approaching the very upper side of anticipated price resistance that lies below the Fib retracement level near $120/barrel. Overall, this sector and crude oil specifically, is a screaming sell. Bear put and straight put strategies are recommended. Natural gas remains a long term buy to play a volatility spike with straight calls.

Financials

The stock market has broken through all conceivable near-term resistance and is a breakout bull market, one that appears on a final leg of an extreme overbought market condition and a 'bet the farm' short at these levels. Bonds remain a premium collector's dream and I do not see downside risk here as the market is pricing in the earliest conceivable rate hike position by the Fed. That leaves the market exposed to upside price action should any chinks in the armor appear for this economic recovery during the remainder of the year. The dollar continues to see weakness as the Fed plays opposite the ECB with economic policy. The Fed is actually not following the pack, which creates a divergence in both economic strategy and market sentiment. Clearly if the ECB is raising rates that means they are making a monetary policy decision that in essence strengthens their currency as it avoids the inflation risks that the U.S. is taking to continue to offer a loose monetary policy. This divergence has sparked a major currency investment shift back into the euro, something I first wrote about prior to the rate hike in the March 6 WCR. Long term this is unlikely to play out as the U.S. monetary policy is, in my opinion, most likely to succeed and to not incur inflation risk. Therefore the dollar is a buy on a strong dip like the one we are seeing, and long term the dollar index should break back through 80 and resume a bullish trend. The yen, despite all the chaos following the quake and tsunami, remains a strong buy and 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.

The Aussie and Canadian dollar both have clearly broken out and are technically bullish; however these markets are overbought and likely to see strong retracements, making them short opportunities at these levels.

Grains

Grains appear to be following along the commodity inflation wave and playing the potential for global shortages. I do not expect this as a fundamental reality and see the grains as significantly exposed to downside if crude oil prices reverse as anticipated. The corn/wheat spread is hitting a pretty historic stage and I recommend using in-the-money options to play the widening of this spread over the next 6 months. Is it possible that wheat is no longer the substitutive commodity it once was for corn and that corn will strengthen in price beyond wheat? I do not believe this is possible over the next 5 or 10 years, outside of a random short-term event like the one we are seeing, as the cycle shift to corn will create a real wheat shortage. It takes time to see fundamental structure shifts like what may be occurring here and this move is likely temporary.

Meats

Cattle remains a strong short with key support above 110 on the June contract unlikely to hold. I believe there is an historic selloff underway in cattle and the opportunity to play a downside move to 80 over the life of this selloff is possible. Hogs are a short as well, with support on the June contract at 94.50 also unlikely to hold up.

Metals

Silver's overnight collapse is just the beginning of an historic metals failure and an indicator of the volatility that should be expected in the near future as metals become a panic sell by investors overbought in this sector. $28 silver here we come. Gold in triple digits? Sooner than you think. China's slowdown should create a cycle shift in copper and bring that metal crashing down - bulls beware.

Softs

Short covering ahead of anticipated cold temperatures in Brazil during the week of May 9 is indicative of the market hysteria currently hitting the coffee market. To get two weeks ahead of some cold weather out of fear for frost is getting a bit carried away. Look for this week to offer a potential selloff if the frost concerns become unwarranted. Cocoa exports should see some action this week out of the Ivory Coast, and this ridiculous rally should be met with strong selling and a trend reversal back to a bear market. Cotton remains a strong sell in the front month as liquidation is likely. Sugar continues to offer potential downside and is a sell with straight puts. OJ is also overbought and unlikely to break resistance above 185, making a sell with straight puts 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.