Energies
Energies plummeted this week as the initial reaction to the ceasefire and Alaskan pipeline stories have helped to alleviate both geopolitical and supply side premiums in the market.  Nevertheless the market is not heading straight for $60 and this is an ideal time to be a buyer of bull call spreads and a seller of puts which have popped in premiums.  Natural gas’s failure following the Friday morning rally is a bear indicator, but should be supported by the weather and/or fundamental news that will likely rally the energy complex as a whole.  Call options in natural gas could spike hard and fast and may be a worthwhile long shot trade.

Financials
I must admit I suspected we might be in a fake out scenario on the short side, but the rally is just as insincere as the previous sell off.  The stock market is setup to fail next week.  While we broke through 1305 and the market does not have technical resistance for almost 30 points, the market momentum should shut down as energies rally and the market lacks key economic reports to trade off of next week.  Bonds ended the week by breaking through key resistance and settling just under 110.  The charts suggest a serious rally is underway, but I am short until we close above 110-02.  The dollar was choppy and the currency complex lacked volatility this week, which came as a bit of a surprise.  It seems the currency markets are churning a bit and building congestion before making a major price move.  I remain a dollar bull while maintaining short plays in the euro and Canadian dollar.

Grains
Weakness in grains continued this week as the market appears set to go to zero.  This is a buying opportunity here.  Remember that grains have been counter seasonal for the last few years – missing that summer rally but getting unusual harvest time support and global demand spikes.  I suspect buying long term call options in beans, wheat, corn and especially rice will be big winners.

Meats
Cattle filled an important gap and a close below 90.55 would indicate a strong shift in momentum.  I highly recommend buying cattle puts long term.  Hogs remain more technically and fundamentally supportive and a short cattle versus long hog play is recommended.  Also a long hog versus short pork belly (yes they still trade pork bellies) on a two to one ratio is a solid trade.

Metals
Gold is weak and getting weaker.  This market is letting go of its flight to quality premium and could be in for a bumpy and wild selloff if the US dollar gives it yet another reason to break.  Buy puts with a fury on a bounce to 630.  Silver seems a bit confused so buy some long strangles to play an expansion in volatility coming soon.  Copper is on the decline and if you aren’t already short you can still pick up some March 180 puts on the cheap.

Softs
The sugar meltdown continues – offering as much as 20 times ROI on those sugar puts we talked about a few weeks a go.  This market is in such a volatile condition that long option plays are the way to go – buy calls on the next down day of 30 points or more and play the upside volatility when this market turns – albeit even on a temporary basis.  The shift in US pricing policy coupled with a big-time supply report on the 11th has turned this once extreme bull market into one of the most impressive long liquidations we have seen in any market in years – the funds are running scared, but when the money comes back it into the market the bull rally could be just as extreme.  Coffee continues a choppy but nice momentum turning rally and everyone forgets we are still in the heart of frost season.  Buy Dec. OTM bull call spreads.  Cotton is still bearish.  Cocoa prices failed below 1598 and could break support, but the gut says even if it does there is a buy here on some Dec. 16 strike calls for under $500.  You could even go out to March calls and play the election nightmare that is about to ensue in the Ivory Coast.  OJ surged on a private analyst’s supply forecast and is definitely expanding in volatility following the bullish report.  Futures traders need to be weary of tight stops and long option players should be taking off call positions as call premiums are through the roof – it doesn’t matter if the market is going to blow through $2, money management and option premium analysis makes more sense – pull half your long calls and then the rest of the ride is with the house’s money.  Lumber is a nice buy, but I would like it around 240 before I go into some calls.

James Mound is the head analyst for www.MoundReport.com, and author of the commodity book 7 Secrets. For a free email subscription to James Mound's Weekend Commodities Review and Trade of the Month, click here.