Energies

The Energy markets showed strength even as inventories rose on the last API report primarily because of the latest cold front to move through the northeast region of the U.S. Temperatures are expected to be roughly 6% colder than average and while refineries for the Distillates are pumping at pre September levels of about 90% they are still behind the average at this time of the year that exceeds 94%. With the current supply levels the fear remains that as winter demand kicks in the inventories will begin to drop at a rate much quicker than the present refinery capacity can keep pace with. More important than the reality of this current supply and demand picture is the hypersensitivity this market has shown over the past year to any Bullish news.

The Natural Gas market traded above 15.50 for the first time in over two months signaling the retest of the all time high of 15.60 in the near future. This is probably the market with the most upside potential in the energy complex. With production still down by over 25% overall due to hurricane damage to offshore facilities in the Gulf, the prospect of being able to maintain adequate supplies throughout the expected winter seems less and less likely and the ability for this market to reach 20.00 seems more realistic than ever.

This week should set the tone for the next few weeks as we will see the first Department of Energy report that truly reflects the impact of winter on the supply and demand picture. That being said I am looking for Crude to trade upward to around 62.00 or 63.00 by weeks end. Heating Oil should come out of the recent doldrums and trade higher as well, I have an upside target around 183. Unleaded should be the laggard of the bunch as inventories continue to rise and demand steadies but this environment should be supportive at the least.

Natural Gas has explosive upside potential and I expect us to break through previous resistance by mid week with a finish above 16.00.

Financials 

Stocks
Stocks continue to defy gravity. I have been waiting for a pull back now for some time and it continues drift sideways. While the market has not gone down it has not gone up much either. Lack of conviction from both camps seems to be the theme lately. Overall I have seen nothing to sway me from the bear camp so I must continue to advocate the buying or spreading of puts on the indexes.

Bonds
Bonds continue to be magnetically attracted to the 112 handle. I know I wrote the same thing last week but it is still true. Tuesdays FOMC meeting should finally break us out of this range and if I had to bet on a direction I would bet bonds will rally this coming week. As usual however we are not calling a direction with or FOMC Bond Strangle that was recommended today also. Click here if you would like to see this trade.

Metals 

Metal mania continues. Gold pushing through $530 continues to look strong. Silver too found it's way above $9.00 Each point of resistance thus far has done little to stop or even slow this rally. Caution is advised because too much of a good thing rarely lasts. Keep stops tight or buy puts to protect. Copper's short squeeze seems to have petered out this week. Look for one last thrust up before a big fall.

Grains 

Grains started to rally this week but are still not breaking out. I do expect to see follow through this week so if you are not already long it is time to look at it. Most grain markets are seasonally strong in the end of any calender year so don't overlook this trend. As I mentioned in past issues, Oats continue to lead the way higher. 

Meats 

The entire complex took a break this past week as the Cattle and Piggies settled slightly lower on the week. Live Cattle hasn't broken its upward trend however so any speculation that this raging bull has turned around is baseless. I'm looking for Live Cattle to follow suit the rest of the complex and continue consolidating in its current range. The Hogs and Bellies have consolidated well over the past few weeks and seem ripe for an OTM Strangle with at least 30 days to expiration.

Softs 

OJ continues to get a boost from the cold weather, but here in Jacksonville, FL there is no threat of frost or even any temps below 40 so I do not expect any frost damage to materialize. Cocoa struggled to follow through this week and looks like two weeks ago was just another head fake from this market. Buy stops around 1500 on the March contract are a way to catch a rally if it ever comes. Coffee is trying to maintain support above 95.00 and so far has, but it is looking weak. We could see a test of the September 2005 lows at 90 if 95 is broken next week. Sugar continues higher and I see little outside of a very large long position held by small traders that will push this market down. Remember Sugar is quickly becoming an energy contract with ever increased demand for ethanol. Cotton did stabilize this week, but that is about it no real attempt to move higher.

Currencies 

EUR/USD
The Euro continued to stabilize this week and I believe it is setting up for a move back above 120.00. If you notice there is a 1-2-3 bottom formation being formed at this time. A move above 119.02 will confirm this. Buy stops above 119 are a good way to catch this next move if you are not already on board from last weeks recommendation.

USD/CHF
This market is trying to break down below 130 but so far has not been able to on a closing basis. I am slowly becoming a bear of this market but will wait for a decisive move below 130 before jumping on board.

GBP/USD
Looks like my call for a new low was wrong. This market seems to really be getting some legs and I now expect to see 178 taken out this week.

USD/JPY
After briefly pushing through 121 we are now beginning to see a stall. Like I said last week this market is very overbought and needs to at the very least consolidate recent gains if not give some of them back. Expect some downward pressure this week as a test of support at 118 is not out of the question.

AUD/USD
The Ausi is trying to make it way back above 76 and that is still my target but the pace is very slow.

USD/CAD
My 115.88 level was taken out this week. I expect to see this market really break down this coming week so longs be warned and shorts get ready! This market could find itself making new lows all week.

USD/MXN
Wow can you say shakeout. The peso had been selling off earlier in the seek only to rally for the ladder half of the week. I was stopped out of my shorts and for now will stand aside.

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