Energies

The bear flag formation that had been setting up nicely over the past couple of weeks finally got the call as Crude Oil finally broke down to retest support above 5920 with the low of the week coming in at 5925. On a closing basis the market struggled in the latter half of the week to settle above the psychological support of 6000. By Friday however the fight was over and the market had settled down 3.71 on the week at 5996.

The primary fundamental argument is that inventories are at high levels not seen in seven years and this means supply is plentiful enough to move the markets lower. That explanation would be enough if you assume Ceteris Paribus but thatââ,¬â"¢s not the real world, is it? While I would agree we are not in a crisis supply situation at the moment, I also realize that the demand for Crude Oil seven years ago pales in comparison to the current figures. The difference is significant with 1999 world demand at 74.6 m/b day as compared to 82.63 m/b day in 2005. I also donââ,¬â"¢t recall any major concerns on the terrorist front seven years or that OPEC was pumping at full capacity. As a matter of fact OPEC still had some ability to govern output back then and was defending some pretty poor pricing around $20 a barrel.

This is not to say that itââ,¬â"¢s a lock that weââ,¬â"¢ll see prices head back to the upside from here but it does pose the question, what has changed? Iââ,¬â"¢m not sure that enough has changed to warrant prices moving much lower but I canââ,¬â"¢t ignore the psychological shift that is taking place in the markets while traders are being lulled into a nervous bear mentality on the supply picture alone. Letââ,¬â"¢s not forget to look at the technical picture this week as another bear flag seems to be in play here as well. This is actually a decent entry point for longs or shorts with relatively tight stops. We are still holding on to the bull call spread from last week unless we see a confirming turn to the downside this week.

Financials 

Stocks: Stocks spent most of the week recovering from the previous weeks slide. It still managed to be rather unimpressive of a rally by not even being able to close above 11,100. Overall the market continues to look and act tired and somewhat scared. I expect a retest of support at 10,900 this week, and a move below that towards 10,800 seems possible as well.

Bonds: Bonds began consolidating after last weeks big breakdown. A bear flag is forming and a move below 110 this week seems like the most probable direction, however we could see continued sideways movement this coming week as 110 support level is somewhat strong. I will be buying long at 110-05 with stop and reverse orders at 109-30 playing both the range and possible breakdown.

Metals 

Metals spent the week trending lower. Gold closed the week back at the support near 540. Silver too continues to consolidate but did manage to stay firmer this past week than gold. I do not expect this to last. I expect silver to gravitate towards 950 this coming week, while gold remains relatively stable. I continue to see overall range bound trading ahead of us in metals. 

Grains 

Grains struggled with conflicting news stories and reports this past week. While I hear and see many bear arguments about grains this year I have not see the grain markets being able to get and keep any real downward momentum. I remain a bull and continue to favor wheat and corn over other grains this year. Look for a resumption of the upward momentum in the near term.

Meats 

Live Cattle continued its downward trend this week after breaking down through support the week before. This market seems more oversold than ever to me and a short term long futures contract seems like a decent play here. We are still holding the calendar spread from two weeks ago and as of right now it is roughly break even.

The Hogs broke down further as I suspected last week and I believe they are still a great short. Selling bounces to 60.00.

Softs 

OJ managed the upside breakout I was waiting for and I am now long from 135.25 with a stop working at 131.75. Cocoa staged an upside breakout but don't be fooled. Sell any rallies the get near 1500 and look for cocoa to breakdown below 1420 near term. Coffee failed to follow through above 115 last week and is now testing support near 106 on the May contract. Look for support to hold and overall stabilization this coming week. Sugar did trend lower this week and then bounced late friday off of support near 16 cents. I do not expect support to hold this week so look for a move below 16 with the target being a test of strong support which lies near 15 cents. Cotton managed to hold support and tried to rally. At these prices cotton is a value play so aggressive traders should begin to pay closer attention to this market and could go long at the current price with stops at 53.50.

Currencies 

EUR/USD: The Euro fell hard on Monday and then consolidated the rest of the week. I do expect support near 118.50 to hold and buying between there and 119 should do well with stops near 118.20.

USD/CHF: Trailing stop took me out at 130 for a 200 pip gain. I did not reverse and go long though I should have in hind sight. For now I remain flat but will look for a sell above 132 again.

GBP/USD: Got stopped out of my long trade early in the week for almost a 100 pip return per lot. I then went short when support near 173 did not hold today. I remain short from 172.79 with stops at 173.25

USD/JPY: Buy stop at 117.20 was filled and I remain long with current stops at 118.20. 119 is significant resistance so we could stall here again but a move towards 120 seems more possible now than it ever has.

AUD/USD: Got stopped out at 74 for about a 50 pip loss and then shorted when support at .7350 did not hold. I am still short from .7348 with stops working at .7385.

USD/CAD: Finally went long at 114.52 and remain long from there. Current stop working at 115.50.

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