Energies

This past week has my belly full with Humble Pie. It's been a while since I was this wrong on the energy markets and it just goes to show that no matter how much information you have, the market is the final answer. My saving grace comes from a couple of points. One being the suggestion of cheap bear put spreads in these markets as opposed to short futures contracts. The other being a warning against selling naked, out of the money options in an effort to capitalize on increased premium and the perceived “safe zone” of range bound trading. The reason I made that recommendation was to combat some of the silliness I've heard and read lately by so called experts that now was the time to take advantage by collecting that premium and letting those options expire worthless.

The energy market on the whole is trading completely adverse to the factors I have been successfully utilizing for the past year and it seems that the fundamentals are taking a serious backseat to the technical factors at this time. We have watched over the past few months as the monthly chart for Crude has revealed a strong bull flag. However, the idea that we would be re approaching hurricane devastation prices in the midst of healthy supplies and mild weather just didn't seem feasible. For that reason, even in the face of major breakouts in the daily charts and continuing fuel added to the fire by OPEC announcements looming, I am going to say that this rally defies gravity and I am expecting a reversal as sudden and extreme as the run we have seen to the upside over the past week and a half.

If you must get long here, protect your futures with a near the money put option to avoid the headache of being stopped out or even better if the market finally breaks down then you can exit the futures and maintain your short position in the option.

Financials

Stocks
The January effect so far has not disappointed us. The Dow finally pushed through 11,000 and I expect to 11,200 very soon. 11,029 is the old high on the March contract so we may see a bit of resistance there but I don not expect that resistance to hold. If you are looking for fundamental justification for this move, there really is none that I can see. I feel this is likely to be a final thrust up before a rather dramatic turn. Don't be fooled by those who say a flat yield curve means nothing. It is hugely important and only the greenest economist would ignore it.

Bonds
Bonds spent the week chopping back and forth as we expected. This is range bound trading at its best. With very few rate hikes remaining the bull camp is losing steam fast. I expect this coming week to also be a range bound week with a slight bias to the downside. In other words I will have stop and reverse orders on my longs but only stop orders on my shorts.

Metals 

Metals really got back in action this week. With a weakening Dollar metals have little choice but to rally. Look for gold to climb above 550 this coming week. Silver too is likely to be above 950 by weeks end as well. Copper continues to confuse me and I continue to stand aside. Platinum and Palladium are also likely to continue this now well established bull trend. Final support on the Dollar lies at 88.34 and 88.22 on the March futures contract traded at the New York Board of Trade. If those points are broken (and I think they will be) then there is really no other support until we fall all the way down to 85.86. So I think one has to admit now that George Soros and Warren Buffet did have it right after all!

Grains

Grains did hit resistance last week as I mentioned but have now had a nice correction and I feel we will start to see higher grain prices across the board by the middle of next week. Beans will likely lead the way back up. Look for continued weather issues in South America as well as a falling Dollar as the “reason” for the next turn in grains.

Meats 

Is there anybody out there actually trading this stuff? I mean nothing happening amidst the reopening of borders that all the ranchers were screaming about. Nothing? I guess we saw some movement in the bellies but it's reminiscent of the same bounce we saw a month ago before it made the next move to the downside.

I still think the Live Cattle market is way overbought and the seasonal lull for the Piggies should have had more of an affect than what we've seen thus far. If I have to pick a direction out of this consolidation across the board it would be down.

Maybe if they moved these pits from NY to Chicago then we could get some real interest and liquidity and I wouldn't feel so bad recommending a trade or two in the markets. Until then remember to only give them limit orders for futures and if you want to trade options you better work with a pro. Nine times out of ten it's not even worth getting the bid/offer.

Softs 

Oj has been unable to break down in any real way so far. I continue to favor the bear camp and will wait patiently for this breakdown. I continue to be unconvinced by the bull camp in Cocoa. I must therefore continue to recommend holding puts if you are long futures, as this market can, and usually does turn on a dime. Coffee pushed through my 112.40 target from last week and actually got almost all the way up to 120. This market is on fire and coffee is one of those markets that really likes to trend once it gets going. So I expect more strength here near term. But be cautious as we could see a shake out coming as we approach 125. Sugar remains strong being helped by a recovery in energy prices. However, I still would rather hold puts than calls in this market for now. Cotton continue a slow churn higher. Look for a strong move up in cotton this coming week as it too benefits from a falling Dollar.

Currencies 

EUR/USD
What a week for currency traders! With the break down of the Dollar almost every sing currency responded with a roar! I maintain my bullish stance on the Euro and have a target of 123-124 by the end of the month.

USD/CHF
The move below 128 on this contract now has me getting short. My target for next week is 125.

GBP/USD
Well our stops held and we continue to be long. Stops have been moved up to 172 abd my target is a break out above 179 this coming week.

USD/JPY
I hope many of you took last weeks recommendation in this market as it turned out to be one of our best trades in quite some time. We continue to be short, next target is 112.

AUD/USD
Well this market was one where I must admit being wrong. Luckily I have stood aside this market the past week so it has not hurt at all. I now expect to see a move above 76 near term but will continue to stand aside none the less.

USD/CAD
Covered our short below 115 and are now flat here as well. I am a buy on a move above 117.55 and a sell below 114.28.

USD/MXN
Still short this market. Stops are now working at 107000.

Risk Disclaimer 
Past performance is not indicative of future results. Trading futures and options is not suitable for everyone. There is a substantial risk of loss in trading futures and options. 

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