Financials
Stocks: Stocks continue to defy gravity and reality for that matter. After we get one of the largest increases in unit labor costs, a clear sign of inflation, stocks still cannot sell off with any vigor. We remain bearish and continue to point to fundamentals as the reason why we remain short. We continue to accumulate puts with an objective of a breakdown back below 11,000 on the Dow by then end of this month.

Bonds: Bonds did in fact consolidate as we expected and we are now trading in the range that we expected. We should continue to see bonds drift this coming week ahead of the September 20th FOMC meeting. We do not expect the Fed. to do anything to rates at the September meeting or the October meeting for that matter. This lack of direction from the Fed should translate to a lack of direction in bonds over the next few weeks at least.

Energies
Crude Oil broke below critical support at 68 that I mentioned last week and we were stopped out of our long trades. For now we are on the sidelines in energy with Natural gas being the exception. Natural gas continues to hold above its support level and we are now long with stops just below support. Natural gas and crude oil are not correlated that much so they can easily go in opposite directions which is what we are expecting in the near term. Aggressive traders could look to spread long Natural gas with short crude oil in the near term as well.

Metals
Metals really took it on the chin this past week. Silver had the biggest sell off of the group but gold too fell down hard. Silver remains in an overall uptrend, while gold on the other, hand continues to consolidate or drift with its range. We remain bullish silver unless we close below 12.00 next week. If that happens then we open the door to a bear market in silver. Gold too needs to hang onto support at 600 if we have any hope of seeing 650 before this quarter is out. The main reason for the sell off is the strength in the US dollar and that strength is based on the idea that inflation is heating up. So that begs the question, how can inflation be rearing its head and at the same time the number one hedge against inflation sells off? I would ague that this sell off is simply an shakeout. This sell off however, gives traders a great low risk entry point on the long side with stop and reverse orders just below critical support levels that I mentioned above.

Grains
Grains continue to struggle and drift. We remain bullish but this waiting game is getting old. We did get stopped out of our long soybean trade and are now sidelined until a stronger trend develops. I continue to eye long wheat but have yet to pull the trigger on that trade. I would like to see a strong close above 430 before diving back into this market. Overall the average true range (ATR) in these markets is so low right now that the trade here is tired at best.

Softs
OJ drifted this past week. The range between daily highs and lows was so small that one wonders why they even bothered to open the pit this past week. We did not strangle this market yet but continue to see that as the best opportunity in this market over the near term. Cocoa tried to start the week off with a rally but that died a quick death and we are now drifting in this market as well. We remain long futures with stops at 1473. More or less the same story in coffee this past week. The good news is that we filled the gap but failed to stabilize after filling said gap and we are now leaning on support at 105. This gives aggressive traders another great long entry with a tight stop and reverse point just below that 105 support on the Dec. contract. If 105 does not hole then we will test support at 98-100 almost for sure. Sugar continued to try and reverse the sell off this past week but we are not out of the woods just yet. We need to close above 1338 on the March 07 contract before we feel comfortable calling a bottom. We remain long via our swing trade but have not yet covered the puts. Cotton continues to drift lower although the range is so small that only floor traders can make anything with this market in my opinion. I will attempt some long trades as we near 52 this coming week on the Dec. contract with stops just below 51.

Meats
After rallying through resistance @ 92, live cattle finally stalled just below 95 and on Friday we saw quite a bit of profit taking. Trendline support is also just below the current levels and I would not be surprised to see a pullback to the $90 level. Feeder cattle on the other hand finally moved out of quite a consolidation and the straddle we recommended last week is looking good so far. Lean hogs continue to make new highs and are currently pulling back to test support between 65-66, if those levels donââ,¬â"¢t hold, expect to see some selling come into the market.
 
Forex Currencies
EUR/USD: After weeks of ongoing consolidation we are finally beginning to see some signs of life in the currencies. The wedge this pair had building for the last month ended with a downside breakout, a classic example of the explosive moves that can occur after these types of formations. The re-mergence of inflationary concerns here in the U.S. may lead to further increases in the Fed target interest rate. What does all this mean? In the long run it is still hard to tell though in the near term I would expect an increased volatility. This pair found a bit of short term support near 1.2675 & 1.26 with resistance between 1.27 & 1.2725 followed by 1.28. Keep your stops tight and trail them to get risk free as soon as possible. Capital preservation is of utmost importance in uncertain market conditions, so cut your losses quickly to avoid becoming emotionally attached to your bad trades.

USD/CHF: After holding support 1.2275 this pair rallied strongly for three days near resistance @ 1.25 to end the week. As with the other USD pairs I do expect some profit taking after the recent gains, though it will be interesting to see if the momentum will be sustainable. If this pair fails to break out above resistance keep an eye on the support between 1.24 & 1.2425.

GBP/USD: Well what can I say, the breakout I was waiting for never materialized. Although it never feels good to admit defeat, it is a fundamental aspect of trading. In fact, after stalling just below the recent highs, the lack of buying interest became quite evident. The sellers quickly and forcefully drove the cable down to the gap from late July @ 1.865. Support @ 1.8575 & 1.85 and resistance @ 1.8825 & 1.8860 are key short term price levels to watch.

USD/JPY: The short side trade I suggested last week worked quite well for this pair. The sell off reached my downside target of 115.75 for a nice profit. Subsequently the pair then reversed and rallied back up to our point of entry At this point I am looking to fade this market above 117.50 with a tight stop and reverse order. A breakdown below 116 would also provide a good entry for a quick short play down to 115.50.

AUD/USD: After gapping up to start the week, the Aussieââ,¬â"¢s failure to follow through led to quite a sell off. By the end of the week the pair had traded down through the recent range and on Friday we saw a breakdown below support. .7525 & .7425 look to be near term support while .7575 to .7600 should act as heavy technical resistance.

USD/CAD: Support @ 1.10 held early in the week, and it became evident the selling pressure had subsided. On Friday we saw quite a short covering rally surging up to resistance @ 1.12. There remains quite a bit of overhead resistance at these levels and any longs should be sure to tighten their trailing stops as you realized quite a nice profit in only one day. An aggressive trader might try shorting just above Fridayââ,¬â"¢s close with a tight sell stop, though such a powerful move may be indicative of further potential upside.

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.