Financials
Stocks: Stocks managed to rally rather than sell off as I had expected. We are now pushing up against the upper end of the well established summer trading range. I do not expect this market to follow through this coming week. In fact, I expect to see this market stumble this week and then fall the next. So overall I remain bearish and continue to buy puts. This is range bound trading at its best. Aggressive traders could look to put on a swing trade early this week by shorting the September futures contract on the Dow and at the same time buying an at the money call as a protective stop.

Bonds: Bonds rallied back to and through the recent old highs and continue to push towards resistance at 110. Near term we have little to get in the way of a push to 110 but after that we open the door to a correction. While it would be great if the Fed was able to keep inflation at bay, history shows us that this is not the likely outcome. I continue to buy 108 and 109 puts for both September and October.

Energies
Well I must admit to being on the wrong side of energy this past week. I was stopped out of most of my trades. I continue to be a bull though now a wounded one. Trading with as much leverage as we do can have a devastating affect if not managed with the strictest of rules and discipline. I can say this having not had either in my younger years. While this past week has been anything but fun for our energy trading it does prove one unavoidable truth: Managing risk is absolutely the most important part of being a long term successful trader. So for those of you still brave enough to trade these wild energy markets I must continue to advocate finding creative ways to manage your risk before you put on the trade. Energy markets as a whole are at a critical level. If crude cannot hold above $70 then we could open the door to a dramatic longer term correction that would be great for all of us as consumers of energy. The trader in me, however, remains unconvinced that the bull is dead. At best the bull is resting and building up strength for a final push towards $100 over the longer term. So aggressive traders should plow in here early next week and buy support near $70 and then see if it really holds. I will be doing this via calls and call spreads as always.

Metals
Metals spent the week drifting sideways to lower as we expected. Gold fell down a bit more than I would have liked but overall remains strong. We may test 600 in the near term but again I remain a bull and continue to add to my now rather large position as we go lower. And yes I know how many people averaging down has killed but what I am doing is not averaging down in the traditional sense. Most people average down by doubling up at a lower price only after the trade has moved significantly against them. This is because most people put there entire position on all at once. This is something I try and teach new traders not to do. If you know you want to put 5 contracts on in a particular market why would you put them all on at the same time? In case it moves your way right away you say. Lets be honest now, how many times has this actually happened? Few if any I would guess. I argue that if you know you want 5 contract then you are better served to stagger your orders around a support level or whatever you are basing the signal on. That way your average price on the full position should be closer to the low than if you put them all on at the same price. Looking ahead to the metals next week I see continued sideways movement and a test of the 600 level seems likely. After that we could resume the uptrend but for now that is a bit to far ahead to call yet. We continue to advocate buying support in metals as long as the risks are understood and managed affectively.

Grains
Grains continue to struggle but are showing signs that the downside movement is running out of steam. Soybeans need to hold above critical support at 545.50 on the continuous chart. If we close below that level we open the door to a run back to 500. Longer term I remain bullish and these low prices are likely to hold the same sort of mythology that $25 crude oil now holds. Does anyone remember (or should I say want to admit to remembering) thinking that Crude was very expensive at $25, because I do. This is likely to be the same case for the current low prices in grains as we move ahead in time. Beans to the teens could finally become a reality sometime in 2007 ââ,¬â€œ 2008. But in the near term we will more than likely see these markets continue to drift and struggle until we get closer to harvest.

Softs
OJ took off like a rocket this past week but then stalled on Friday. I continue to target 200 before this hurricane season is over. Volatility is rising and could continue to rise as we go forward so tight stops will more than likely take you out of this trend prematurely. Therefore I must again encourage those of you long OJ to use puts to lock in profits rather than stops. Cocoa failed to follow through again, but also did manage to hold above support. So we end the week much near where we started and for now I remain a patient bull. Coffee also continued to consolidate as I mentioned last week. Look for Coffee to try and resume the rally this coming week. If we fail to break out again then I will exit longs and stand aside until a new breakout develops. Last week I mentioned buying sugar if it fell as far as 1200 almost half joking. Well the slide to 1200 was anything but a joke (just ask anyone who went long!) and I now putting my money where my mouth is and buying sugar this week looking for at least a dead cat bounce in the near term. Cotton continues to drift sideways and I continue to lose interest in this market. If we canââ,¬â"¢t rally soon I may start only commenting on this market once a month since we seem to only move about once a month. I remain bullish but for how much longer?

Meats
Quite an exciting week in the meat complex has the majority of contracts trading at new highs. Oct lean hogs continue to rally on talks of steady demand in the cash market and potential under supply. At this point, it appears a bull trend is in the motion and I would rather trail my stops than try to pick a top on this one. Oct Live Cattle pulled back and filled the gap from last weekââ,¬â"¢s b/o, a classic sign of underlying strength. From a risk to reward perspective, entering the market here with a stop below 90 seems very attractive, especially considering the momentum building within this complex. After falling through the floor last week, Pork Bellies traded limit up this week to regain all of the ground lost in the last few weeks, and then some. To reduce the risk of being caught limit up or down in the market, use a protective put or call instead of an traditional stop.

Forex Currencies
EUR/USD: This week we saw trade within the recently established range between 1.27 and 1.29. For nimble traders this range has been quite tradable, with few if any false signals. Trading a stop and reverse system is a great way to capture profits in range bound markets like this. Longer term I am waiting for a move out of this range, supported by some fundamental data, before I will initiate a full size trending position. Until then just trade the chop with tight stops. Short term resistance @ 1.2875-1.29, support 1.2780 & 1.27.

USD/CHF: This pair failed to make it through the resistance @ 1.2450, and reversed back down to support @ 1.2250. As I stated last week, the recent lows violated the trend line support in place since May. Furthermore, the failure of the recent bounce to reach a new high leads me to believe that the buyers are losing control of this one. If this pair falls through support @ 1.22 expect the sellers to step in and drive the market lower.

GBP/USD: This pair has formed a classic bull flag pattern after moving through resistance in the past few weeks. I am bullish on this pair, and would expect any move out of the current consolidation to move quickly to new highs. An aggressive trader could initiate a long position using intraday charts @ the current level using the support @ 1.88 for sell stop placement. For the more conservative traders it might be prudent to wait for a bounce and a strong move above support before opening a position, reducing the risk of getting in to early and being stopped out.

USD/JPY: Last weekââ,¬â"¢s rally continued for this pair until reaching resistance midweek at 116.50, and since then, a small and well contained pullback brought us back to support @ 115.75. Although I remain bearish in the longer term, because we currently in the middle of the major support and resistance levels, I would be cautious about putting on a new position if you arenââ,¬â"¢t already in the market. From a risk management perspective is important to open new positions when justifiable buy & sell stop levels are much closer to the entry price. Although there is some support @ 115.75, the two head fakes on Thursday and Friday more than likely forced weak holders out of the market, so I would exercise patience to avoid being whipsawed on this one.

AUD/USD: A volatile yet range bound trade has been the ongoing story for this pair in the past few weeks, bouncing between support @ .7575 and resistance @ .77. This is yet another case of indecision within a market, as it seems both buyers and sellers are unwilling to commit long enough to move us out of this range. What does all this mean? I expect the volatility to continue in the short term and I will use the established range to trade small positions until we get a major breakout.

USD/CAD: This pair seems to be plagued by a lack of conviction just like many other currencies this week. Midweek we had quite a large head-fake down through support @ 1.12 intraday, only to climb back above that level for two days in a row. It seems that the sellers have a slight edge, though not by much. The narrow range and several false signals have made this pair harder to trade than some others. For this reason I recommend staying on the sidelines (or at least trading smaller positions). There is support @ 1.12 and resistance @ 1.1275, though until we move out of that range I remain unconvinced.

Derek Frey is Head Trader at Odom & Frey Futures & Options.

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.