Energies
Energies found price support after crude held $49.90 on the front month ($51 on March). Cold weather in the northeast along with growing fears of a conflict with Iran has energy bulls reentering the market. This rally should be choppy and short lived, with a potential top between $58-$62 – still a decent bounce to play. Natural gas pulled back hard after a rally attempt, and is overdue for a volatile surge to the upside.

Financials
The S&P broke the contract highs and then collapsed as the market is likely seeing the beginnings of a correction that should run for several months. The same geopolitical premium that will be pumped into crude, from potential conflicts with Iran, should be sucked out of the stock market. A key week of economic reports lie ahead, including the Fed minutes, GDP report and employment data will likely be the catalyst for the impending failure.

Bonds spiked a bit in volatility towards the end of the week and the market has resumed its fears over potential inflation. Bonds will likely cool off, but a continued trend to the downside is possible in the near term.

The dollar remains flat lined, but that could change as we head into the Friday employment report. Long strangle plays for Feb. euro options are recommended. The Canadian dollar is at a critical juncture as it must sustain bearish momentum by seeing considerable downside this week. If it doesn’t happen then watch out as this may be a major fake out! The yen is at critical, and really it’s only remaining, support - buy calls to play a bounce after a recent 10% butt kicking.

Grains
Grains channeled this week as the markets developed a bit of a pennant near their respective highs. Albeit a forecast lacking technical confirmation, corn does appear to be setting up for a fall and will likely carry the rest of the sector with it. A lack of fundamental news should bring profit taking and a potential free fall stop-triggering sell off. Monday is an important momentum day and a close in the lower 25% of the day’s move will offer reasonable confirmation of the pending failure.

Meats
Friday’s cattle on feed report showed 11.974 million head of cattle on feed in the U.S. - a 1.4% year over year increase, while beef production was down 1% (weights on live cattle were up 17 pounds). Pork production was down 4% in December year over year. U.S. beef production was up 5.6% and pork production was up 1.5% for 2006. These reports are long term bearish both markets, but the unpredictability of post report market action lead me to a wait and see approach. The gut says cattle will see a significant failure while hogs will find price support.

Metals
Gold and silver leveled off a bit after strong rallies, completing a late January rebound in the metals sector. Look for increased volatility this week as the market is likely to react to economic reports affecting the dollar and other financial markets. Crude oil will also be a focal point of the market as a potential rebound there will give momentum to the bulls. Critical dual Fibonacci resistance exists on a closing basis at 13.55. I suspect a choppy crude rally will not help the gold and silver markets, and a bit of price pullback will occur this week as silver is up over 12% in less than 3 weeks.



Softs
OJ got some attention this week when buying volume came into some long term calls and fear of a weekend frost in Florida suggested a short covering rally might ensue. It is unlikely that the market will continue to pause at these prices much longer and long term option plays are recommended as volatility is relatively low given recent historical price action. Coffee is developing some support near 115 but overall remains in a retracement mode. Puts are so cheap it will feel like they are giving them away. Buy them in conjunction with a long futures or as one half of a long strangle play. Cocoa remains fundamentally bullish but, if it breaks 1573, there is little holding it back from testing 1500. Cotton is still a short. Sugar is testing key support above 1050 and is a buy until that price mark is broken. With the ICE merger coming together one must wonder what kind of action markets like sugar will see this week. Lumber pulled back considerably from a recent run-up and is once again a great OTM call buying opportunity.

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.