Energies

As a result of the mixed API data and cooler temps this past week we have seen Crude break out above its recent range. By weeks end the Jan. contract traded above previous resistance at 59.15 and closed at a respectable 59.25. The Energy Department reported a surprising drawdown in Crude and Unleaded inventories while Distillate levels were higher once again. The draw in Crude inventories is primarily attributable to the fact that refineries have continued to increase their production capabilities over the past two months and demand for those products continues to rise. Unleaded demand saw a sharp increase once again and I suspect that we will continue to see demand return with the current prices consumers are seeing at the pump.

With the current weather picture we should see demand for Heating Oil increase sharply over the next couple of weeks thereby creating a bull or at least supportive phase for the next two to three months as homes increase their consumption.

The Natural Gas market was the real mover of the bunch this week as cooler temps were coupled with an extremely bullish inventories report on Thursday. The ability for the offshore platforms to keep up with demand has been greatly hindered ever since Rita and Katrina knocked out over half of the production capabilities for that region. While some pipelines have been restored there are still over 35% of them offline and the outlook over the next few weeks is not much better.

The Bottom line is that for the next week there is plenty of upside potential across the board and I would strongly advise against any short plays for the foreseeable future. Natural gas and Crude Oil have the most potential while Heating Oil will probably lag due to the current supply levels on hand.

Financials

Stocks
Well the stock market has been stronger than I expected. But we are starting to see signs of an overbought market. Fridays lack of a rally after what were considered good reports speaks volumes to me. I know everyone is talking about how strong the flow of funds are coming into the market but that alone cannot justify a sustained bull trend. Look for this Christmas rally to begin to lose steam this coming week. Sooner or later investors are going to look at the USA's checkbook and realize how overdrawn we really are.

Bonds
Bonds continue to be magnetically attracted to the 112 handle. Even the ECB raising rates was not enough to move bonds out of the range. A brief attempt at an upside breakout failed only to be followed by a failed breakout to the downside. I see continued back and forth action until we get a clearer sign from the Fed. And or Mr. Bernanke.

Metals

Metal mania continues. Gold pushing through $500 continues to look strong. Silver too found it way above $850 Each point of resistance thus far has been little to stop this rally and I see nothing yet that would slow this runaway train down. But be careful a pull back, when it comes (and it will), will likely be very violent in an effort to flush out all the weak hands so keep stops tight.

Copper continues to run and little news has come out about the China situation that I mentioned in the last newsletter so the squeeze is, quite obviously, still in full play.

Grains

Grains continue to frustrate me. I am now long both Corn and Wheat and feel good about it but I'd feel a lot better if they moved! A small long position in these markets makes sense based on the very oversold condition that they are in. I would like to see Beans back above $6.00 per bushel before going long. Oats have been strong lately and they tend to be the leader of the grains so look for some strength to come into grains this coming week.

Meats

While Live Cattle sold off hard on Fridays close the prevailing bull trend seems likely to continue. The market still finished the week higher and the recent demand figures continue to look healthy.

The Hogs returned to their previous range of two weeks ago but they still lack the fundamental data to make them or the Bellies a buy at this point. I am staying on the sidelines for now and will revisit them in the middle of the month.

Softs

Oj began to rally again mostly due to cool weather in the south. This could turn into a resumption of the bull trend we had been in but I do not expect this market to be a run away bull like we are seeing in metals. Cocoa looks like this time is for real (finally). Next target on the March contract is 1500. Coffee broke support and is now going to test previous lows around the 90 area on the March contract. Sugar decided to get going after all. Stalled today but expect more strength here next week. One work of caution...small speculators are net long 160,000 contracts at this time. Anytime everyone agrees on a direction you can bet on a correction. Cotton continued to drift lower this week. Look for Cotton to stabilize this week.

Forex Currencies

EUR/USD
The Euro got its rate hike but failed to do anything with it. I do expect the 116.40 low to hold for now and would be a buyer anywhere below 117 with stops below 116.29.

USD/CHF
This market continues to consolidate between 130 - 133. I don't see much out there that will move this out of the range in the short term. For now buy the bottom of the range and sell the top of the range with tight stop and reverse orders.

GBP/USD
I look at the bounce we saw in the Pound as just another dead cat bounce. Don't be fooled we have yet to see a bottom.

USD/JPY
The Yen was finally able to push through 120. This trend is strong but also very well established and seems to need a pullback of some kind in the not too distant future.

AUD/USD
Strength in metals and other commodities seems to have turned this market around. Need to get above 76 to bring in fresh buyers.

USD/CAD
The Canadian continues lower after falling just short of the 120 handle. If 115.88 doesn't hold then “look out below!”. This market could find itself making new lows very soon

USD/MXN
The Peso also ran straight for my target of 10.60 and bounced. From where I sit it seems this market is going to continue lower for the time being. Nest target is 10.53

The Peso continues to get hammered and i see nothing stopping this current down trend.

Matt Odom is the Managing Partner and Energy Analyst and Derek Frey is Head Trader at Odom & Frey Futures & Options.