Energies

Crude Oil showed some weakness early on this week as traders were positioning for a very bearish DOE report. While the DOE report showed greater than expected builds for the Distillates and Unleaded supplies, the Crude Oil number came in a little light. This wasn't enough to turn this market around for long. There was an initial sell off on Wednesday followed by a strong recovery to close out the week at 6776 on the March contract.

While traders are still concerned about the domestic supply numbers, the real focus has shifted to the geo- political issues related to Iran, Nigeria and others who hold the proverbial cards in the energy markets. The global supply and demand picture is so tight at the moment that any prolonged interruption of the flow of oil would cause a serious supply issue and therefore send prices well past their all time highs. It is a delicate balance at the moment and the market is not willing to relax until that supply and demand picture find some more breathing room.

I continue to think this market will retest its highs in the near future especially if the sabre rattling from Iran reaches a feverish pitch. The Nigerian problem is worse than many speculate because they are key importers of very high grade light sweet crude for the U.S. that cannot be replaced by anyone at this time. This market looks bullish from a technical standpoint until we see a break below 6300.

Financials 

Stocks
Stocks had a stronger and later dead cat bounce than I was expecting. We are likely to see this rally continue early next week, but by weeks end I believe we will be turning lower again. So the S&P may find its way back towards 1300 this week and if it does I will be selling up there like crazy.

Bonds
Bonds finally broke down through trend line support at roughly 113. I do not expect much movement early next week but by Friday we may see a very nice trend developing. I will be putting on our FOMC bond strangle again on Monday, and so, as with any strangle, I do not care which direction it really goes, but my bias is to the downside. I am looking for the March 30 year US T-Bond contract test about the 110 level by the third week in February.

Metals

Metals continue to be strong over all but silver and platinum are really leading the way. Investors continue to pile into these markets no matter the price. I continue to favor long silver over gold as I have been saying for months now. I currently hold long silver calls along with gold puts as a hedge. For now the path of least resistance remains up but I remain cautious by keeping trailing stops fairly tight. In Gold I have my stops between 550 and 545. On silver stops are working between 9.40 â�,�“ 9.25. I continue to ignore copper much to my dismay but I just donâ�,��"�t have any â�,��"feelâ�,� for that market now and will stay out until I do. Platinum hit a new high again today and has a very solid uptrend in place on the daily chart. Palladium is lagging as usual, but aggressive traders could go long this market with stops at 262.

Grains 

Grains finally took off on Friday. I hope you followed my advice last week and got long. Look for Beans to test 620 at least this coming week. Wheat will continue to lead the way and should find 360 this coming week. Corn will lag but is also moving up with the rest of the group, this coming weeks target on the March contract is 232. Derek Frey 01-27-06

Meats

The Live Cattle market has finally started to show some real weakness as it finishes the week by breaking ever so slightly through support. I'm selling bounces for Live and Feeder Cattle especially since the option expiration on the Feeder.

The Hogs and the Bellies have further seasonal downside potential. Selling OTM call premium on bounces is a nice play for the qualified speculator.

Softs 

Oj just wonâ�,��"�t cooperate. After starting to break down last week, OJ found support at 115 and did an about face. For now we will probably see a range bound market between 125 and 115 more or less. Cocoa broke down again, this market has failed to follow through worse than any other market I have seen in a long time. I will continue to trade elsewhere. After a brief pullback Coffee continues to be strong. I would expect some further consolidation this coming week but I remain a bull, next upside target is 140. Continued strength in energy continues to push sugar higher. Last week I said â�,��"Sugar could see 20 cents before the end of this quarter if the current pace continuesâ�,� maybe I should have said by the end of the month instead of the quarter! I am buying puts on sugar again. Open interest in this market is falling despite the huge rally and that could be a sign that a top is forming. Cotton is also not really doing much. We still have a strong rising trend in that market but the pace is so slow itâ�,��"�s worse than watching paint dry.

Currencies 

EUR/USD
The Euro had a very strong week right up until Friday. Fridayâ�,��"�s reversal is another example of why using trailing stops is key in these markets. The Euro could continue to correct this week but I think support will hold above 120.

USD/CHF
I moved my stops down to 127 earlier in the week and then got stopped out there at a profit. I will look to short again around 128.75 this week with stops at 129.25 to start.

GBP/USD
We got out at our objective of 179 and are now flat. I am working buy orders at 176 now with stops at 175.

USD/JPY
Got filled on my buy stop at 115.78 this week and am still long. Target is at 118 and I am working a 75 pip trailing stop that is currently at 116.75 as of Fridays close.

AUD/USD
Buy stop working at 75.77

USD/CAD
Not quite stopped out yet. My stop is working at 114.25, and I do expect to be stopped out this coming week.

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.