Energies
A strong bounce back in energies came late in the week as inventory data and geopolitical premium helped boost the market as we head into a weekend in which U.N. Security Council will determine sanctions to be imposed on Iran. This appears to be a case of ‘buy the rumor, sell the fact’ as the market is in a technical place in which there are several bands of resistance and the market is approaching the 50% retracement level without any real indications of momentum to push it further. I recommend selling call premium or buying put spreads. In addition I suspect a shift in momentum in the unleaded gas inventories will tighten the unleaded versus heating oil spread.

Financials
The resiliency of the stock market has stumped me for years as price retracements always seem to fall short of the real potential. China’s stock market recovered completely from its meltdown and the market has essentially ignored the change in language from this Wednesday’s FOMC announcement. The flood of money from tax time pension account creation has helped the market with a spike in mutual fund money allocation. Overall, the break and close above the critical 1331.25 resistance has turned this market bullish, but next week will be critical in determining the long term momentum and the market’s ability to truly and fully recover from the China meltdown. Fundamentally I am awestruck by the market’s complete disregard for issues in the housing sector, slowing earnings growth, recessionary economic indicators and everything that points a difficult hill to climb for the U.S. over the next few years. However, there is no other way to put it because, as they say, it is what it is.

Bernanke is expected to speak on Wednesday and Friday, and we should expect several key Fed speakers over the next two weeks to create a psychological hold on the bond markets as they try to decipher the Fed’s views on the economy. Bonds are a short to 110 and then stuck in a range from there.

The dollar found some price support last week as the yen and euro both saw extensive selling. The yen gave back gains as some profit taking came in after a decent dead cat bounce, but the euro offered nearly a perfect double top and has reaffirmed its range bound activity and set a major price resistance point just above 1.3450.

Grains
After weeks of consolidation the grains finally get their prospective plantings report this Friday. This is perhaps the biggest report of the year, and especially significant this year because of all the shifts in crop planting due to corn’s surge in price and interest. The overall consensus is that a major shift has occurred moving millions of acres of soybeans, wheat and even cotton over to planted corn acreage, thus creating potential shortages in several grains and a potential banner crop year for corn. What will create a well deserved level of volatility this Friday is not whether they are right but rather whether or not the bark was worse than the bite. If the forecasters overshot then the corn market will skyrocket, and even potentially support the other grains. If the shift in plantings is worse than expected then you could see limit moves in several markets. I like strangles in all the grains, but the best bang for the volatility buck would be in some straight calls.

Meats
Some sideways action in meats sets up some consolidation ahead of Friday’s quarterly hogs and pigs report. The pork belly market is overdue to correct and has historically been an excellent short in 100 to 110 range. After weeks of straight decline the hog market might make for an interesting 3-way intermarket spread by buying two hogs, selling one pork belly and selling one live cattle. Overall the meat sector remains a long term short, with cattle offering historically high entry opportunities.



Metals
Metals are stuck in a sensitive spot, with crude potentially topping and the dollar finding price support. Silver ratio credit spreads and gold short strangles are recommended to capture premium in a sector that will have a difficult time setting fresh contract highs in the near term. These markets have had the potential for major price breakouts to the upside ever since gold came off of $250 an ounce, but the market always seems to over-factor that possibility into its pricing models when it is in rally mode. That means a premium collector has a great reward despite a scary risk.

Softs
Coffee found key price support this week, just above previous support areas and slightly above critical trend line support on a long term monthly chart basis. This is a market that could take off from here and call premiums remain at a discount. OJ has seen some selling pressure but is offering a great opportunity to enter into some discounted calls, despite a decent bid being put in by funds and specs on some long term out of the money options. Sugar is right on key support (long futures with 998 tight stops) and has seen continuous selling pressure on a daily basis for weeks now. I suspect we are seeing a low volume decline with a bunch of traders getting short, which will ultimately force a spike rally triggered by short covering and stops being hit. Buying calls here is recommended. Cotton should get a major volatility spike on Friday’s report and is one of the best scenarios for a pay on the plantings report without having to put up the high end premiums being offered by the grains. Cocoa got a massive price spike as stops were triggered on its way to fresh multi-year highs. Overall this market is truly sky’s-the-limit as Ivory Coast chaos, swollen shoot virus and interest from funds all point to a significant rally potential for this market after years of sideways action. Lumber remains a buy, but with calls as opposed to futures.

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.