Energies
Energies continued to see strength from heightened fears of a pending war with Iran. The market is also concerned with declining gasoline inventories ahead of the summer driving season which is likely to spike to demand. Despite the market’s penetration of prior resistance and breaking through 50% price resistance, this remains a market that is overbought and deep into a dead cat bounce that is likely to see a severe selloff. At this point, however, it is not worth the risk of a major price spike overnight from issues with Iran, and therefore selling premium should be limited to very deep out of the money options (selling $90 June crude calls for $300 would fall into that category and be a steal at current levels). Instead, scaling into bear put spreads and straight long put plays is highly recommended.

Financials
Stocks offered some price resistance and selling pressure below a now critical 1451 point on the S&P. This market is very technically resilient despite being a screaming fundamental short, and therefore I remain about 50% invested on some short plays. Bonds continue to pullback off their respective highs and are likely to be range bound for sometime. The dollar is choppy and I remain convinced that nearby support will hold and the market will not penetrate a long term double bottom at 80.50. This means selling the euro and buying the dollar are both great plays at these levels.

Meats
Cattle prices spiked as feed prices dropped after Friday’s plantings numbers. If it is cheaper to feed them, then ranchers will be more inclined to fatten ‘em up and hold onto them longer, thereby reducing short term supply. With corn’s limit down action on Friday many traders feel that we have just seen the top in grains and significantly lower prices are ahead. Monday will be a very important day in this sector as the follow through (or the suspected lack thereof – see grain sector) will tell the story of meat prices moving forward. I continue to like put plays and short futures across the meat spectrum.

Grains
Corn plummeted lock limit for the entire day after the plantings report showed more acreage then anticipated for the corn crop this season. The back months in corn also went limit down, but not until after some trading. Most traders would have thought that a failure in corn would spike beans, wheat and other markets affected by an over-shift into corn acreage, but in fact the tone for the whole sector was overwhelmingly bearish. Corn held all the other markets up and if corn deflates it will bring the rest of the sector with it.

After analyzing the market’s psychology, report details and technical patterns I forecast a complete reversal in the grains next week and an utter shocker for most analysts and traders. Fund buying will support the grains out as early as Monday and spark a rally to fresh highs. A high percentage of plantings reports have historically overestimated the actual acreage and today’s plunge may discourage some farmers. The sector is still very susceptible to crop issues and funds and specs will see this plunge as a value entry opportunity for establishing long plays in this sector.

Metals
Choppy and relatively range bound trade in metals this week offered a bit of surprise to traders as rising energy prices should have forced short covering in this sector. The market appears to be building congestion under the contract highs and losing the inter-correlated market support of crude oil and the help of a weak dollar. I recommend straight put plays, shorts and selling silver ratio credit spreads to collect premium.

Softs
Coffee continued to tumble and is fast approaching a critical band of support between 102 & 105. This market remains a strong long term buy ahead of its critical season. Sugar prices cracked critical support and look very technically weak. This is a market, more so than any market I cover, that has reversed short term technicals without much warning or confirming indicators. Therefore it is important to look at long term retracement points, oversold market conditions and other market influences to determine market direction, and the long term view remains a buy at this price level. Calls remain dirt cheap and long strangles are worthwhile plays as the market is outside of any congestive price channel. OJ is expanding its average daily trading range and appears to be set to explode with price volatility. Long calls and long strangles are highly recommended. Cotton received bullish USDA data on Friday but is also seeing selling pressure due to fears of a trade war with China. I recommend long term long strangles or possibly a short futures play against a long term long call to trade a down chop and then possible rally in the future. Cocoa continues to surge higher as a possible political resolution in the Ivory Coast is being overlooked due to drought and swollen shoot virus issues. This is a bull market that is susceptible to a squeeze play and therefore I would avoid short calls here. A long futures with a put as protection could pay dividends. Lumber remains a long term value buy here.



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.