Energies
Crude oil spent the week rebounding after a Monday collapse. Last weekend’s surprise freeing of the British soldiers held captive by Iran reduced some of the fear premium in the market. However, continued draws in unleaded gas inventory has us nearly down 27 million barrels in the last two months alone. The distillate production is likely to turn its attention to gasoline stocks and begin a stockpile that should reverse the trend starting next week. I suspect we will see positive surprises in gas inventories leading to a top of this recent surge in prices. Long heating oil/short gas spreads are recommended, and bear put spreads in crude oil and natural gas are also solid plays.

Financials
Stocks continued to show resilience and strength this week and ended today at its highest levels since the China meltdown. This is a market worthy of short strangles, as put premiums remain very high and call premiums are at some of the highest levels in recent memory. Wait for a down day to enter. Bonds remain choppy and with today’s benign PPI report it is unlikely to trend anytime soon. The dollar’s failure and euro’s strength has brought about a technical break that is worth a hard look. While I remain fundamentally bullish the dollar, the technicals have setup a ‘last stand’ of sorts above the historic 80.50 double bottom. If the market is to support out it will have to do it here, which offers traders a significant short term trading opportunity to play the reversal of the dollar and euro. This weekend’s G-7 meeting should create some currency volatility as it is likely the yen and dollar will be major points of discussion.

Grains
A technical break in corn and soybeans were supported out late in the week as wheat prices jumped after a hard frost damaged its crop and drought fears in China brought about short covering. The USDA said there was a drop from 71% to 64% in good to excellent crops in wheat and the unknown China factor has many traders reestablishing longs across the grain spectrum. Funds will have little choice but to reenter into longs on dips and it is likely this will raise the market premiums substantially in corn, soybeans and wheat as many traders will be afraid to enter into shorts.

Meats
Cattle prices tumbled this week and appear to be reversing its bullish pattern…again. Lack of recent follow through on bear breaks would make any bear question whether this is the real deal. That is often when a collapse actually happens. I remain a bear across the sector.

Metals
Metals were strong this week as energy prices stabilized after Monday’s failure and the U.S. dollar broke through key technical support. Overall the metals market will be a wait and see market contingent on the U.S. dollar holding 80.50 support. This means that selling premium ahead of any confirmation is recommended and call premiums in gold, silver and copper are all quite high.

Softs
OJ prices faltered as Tuesday’s supply and demand report combined with toppy technicals and stop-triggering price action to make for a volatile collapse in a market long overdue for a price correction. It is unlikely the selloff can go more than 10-15% further as funds and speculators will come in to buy the market ahead of the critical hurricane season. This is an excellent timing play to see a selloff and then scoop up some calls at a steep discount ahead of hurricane season. Coffee offered choppy and volatile trade this week as it builds price support and begins what I believe will be an historic rally. Bull call spreads and straight long futures with put protection are recommended. Cotton weakness is likely to continue as this market is overrun with supply and too many sellers. Cocoa prices pulled back a bit as peace in the civil war stricken country of the Ivory Coast is becoming more and more likely as political events unfold – but I don’t buy it. Sugar is attempting to support out in a consolidation pattern above the lows, but needs to break and close above 10.02 to be seen as even remotely bullish.



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.