Energies
After a strong surge in energy prices the market consolidated this week and is building a bull pennant formation right below key technical resistance.  Crude oil traded an inside day on a bullish inventory report, and the market appears to be waiting for a reason to breakout to the upside.  The chart pattern here has some significant points on a daily chart.  First, the previous technical resistance at 63.70 has been penetrated several times in the past week or so, but the high of this rally is 63.82.  Nevertheless, on a closing basis the market has not been able to close anywhere near these highs, indicating selling pressure at this resistance point (light volume rallies followed by strong volume selling pressure at this resistance area).  Second, the next level of resistance, and possibly the key point to turn this market bullish, is right at 65.20 (closing price for Jan.).  Despite the bullish outlook, the market has yet to confirm it, and therefore this is an ideal opportunity to short futures against long call plays on a ratio (for example, one short futures against three near the money calls).  This will allow for a breakout play as well as the market pulling back off of this technical point.  There should be at least 4 weeks of time on the options and the futures entry should be about $1 higher than Fridayââ,¬â"¢s close.  Natural gas may diverge from the rest of the energy sector as it is dangerously close to breaking through support.  Few traders seem to recall that this market was less than a third of this price not too long ago.
 
 

Financials
Stocks persisted through 1400 and appears to be full steam ahead ââ,¬â€œ do not believe it!  Funds will likely take profits before the calendar year end, and the market will correct.  Puts are cheap, but futures are not a bad play at this price level (use a call as protection).  Bond prices tumbled on the employment report and are due for a correction to about 110.  Tuesdayââ,¬â"¢s Fed meeting will likely be uneventful, not just because the Fed tends not to rock the boat in their December meetings, but also because there is just not enough data to make the Fed shift their stance.  It will, however, create market action as treasury prices indicate a bias for a Fed cut in coming months.  If the Fed does not direct the market, then the market will have to take back the rate reduction assumption that is priced into the market.  Another interesting dynamic is the U.S. dollarââ,¬â"¢s decline and its impact on foreign demand for U.S. treasuries.  This has been the thrust behind the push for higher bond prices ahead of monetary policy changes.  The dollar weakness is being overplayed in the media and is no where near ââ,¬Ëœdoneââ,¬â"¢, ââ,¬Ëœcookedââ,¬â"¢ or ââ,¬Ëœgoing to zeroââ,¬â"¢.  The dollar is weak, but above historical support and is a strong buy down here.  The euro and yen remain short plays and the Canadian settled just under 87 and is right on the cusp of a much needed long term retracement.

Meats
Cattle has been unable to sustain price momentum to the downside and is in desperate need of a break and close below 87.75 to reestablish a bear play.  If the market closes above 91.10 it will turn bullish in a hurry.  Hogs and bellies are both holding a strong trend line support and may have bottomed last week ââ,¬â€œ avoid.

Metals
Gold and silver showed some selling pressure last week, which is a possible indicator of a turn in the dollar ahead, but is nowhere near confirming a trend shift.  I am a buyer of puts, credit call spreads, etc. to play the downside in this sector.

Softs
Coffee spent the week consolidating and building congestion ahead of a major price move coming next week.  This market has a history of flushing traders out by slamming the market, but overall this market is long term bullish and remains on pace for an historic run to $2.  Sugar volatility is reentering the market and is setting the stage for a massive price expansion ââ,¬â€œ long strangles are dirt cheap and highly recommended.  Cocoa is still flying high, with bullish fundamentals and a lot of buyers out there.  I suspect the market will retrace next week and give bulls an entry around 1520.  OJ is setting up a bull breakout, but pick up some puts if you are long because this market is very exposed to the downside and put option prices are too cheap to not pick them up as protection.  Cotton remains a sell.  Lumber is worth a look for buying some cheap OTM 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.