Energies
Sharp declines in the energy sector this week came as anticipated despite a continued drawdown in gasoline inventories. The seasonal pickup in gasoline distillate supply should have come in this past week, and if there is not a positive build in inventories soon the market will resume its bull trend. I see supplies coming in very soon after seeing a 30 million barrel drawdown in gasoline supplies in less than 3 months. On the horizon the market will have to subtract premium from a post-Iran conflict (is it really over?) and what appears to be a lack of major issues after this weekend’s Nigerian election, bringing about significant selloffs across the energy spectrum. Natural gas could be the most susceptible if gasoline inventories come back as this summer and winter demand commodity has found price support during this period of declining inventories. Puts remain under priced in this sector as a whole, and especially in natural gas.

Financials
Stocks continued to power ahead to new all time highs on the Dow and significant price highs in the S&P and NASDAQ. Can this bull run sustain itself for much longer? This perma-bear is spending most of his time picking his jaw up from the ground, taking his foot out of his mouth and looking for other markets to trade. The likelihood of a sustained rally at this point is not, on a fundamental basis, very good, but to be actively involved in a market that has no technical signs of turning south is better left to the stubborn few. Ironically it is those stubborn few who will likely make out like bandits though.

Bonds continue to lack direction and, despite low premiums, offer premium collectors continued dead market action for the time being. The dollar is holding above critical 80.50 support and I may be the only analyst that thinks the dollar will hold here, but it is what it is and only time will tell. The U.S. government is more in control of their currency’s face than many give it credit for. If the government came out and publicly acknowledge necessary support for the dollar twice before at these very same levels than what makes anyone think they won’t do it again? The Fed held 80.50 twice, verbally acknowledged and marked the top at 120 and yet no one thinks they can dictate policy to control the dollar now. It is like all the bulls who thought there was no such thing as a bear market in stocks or the ones who said the housing boom can’t go bust. In the last 20 years the Fed has marked every major trend cycle shift in the U.S. dollar, but sure they are not in control of anything! Keep a close eye on Bernanke and Paulson in the coming months for a public acknowledgement of a currency turn. The euro and pound (which set a 26 year high against the dollar this week) are both in overbought conditions and capable of a sharp and dramatic turn. A pullback in crude oil could spark a period of weakness in European currencies.



Grains
Corn and soybeans sold off this week as fears of delayed plantings were relieved by beneficial weather. Wheat, however, has continued its bull run as the damage from its recent frost is undeniably permanent and devastating to this crop. Is it enough to bring up the other grain markets? No. Yet when I look at what is going on I see a sell off induced by a potential oversupply situation. The key word here is potential. It seems like every time we get a bearish plantings report the seasonality of pre-summer trading is always bearish. Nevertheless we have a post-El Nino year (almost always causing volatile weather), potential demand from a China grain supply shortage, a whole growing season and harvest ahead of us. Corn is simply going back and testing the back-to-back limit down moves following the plantings report and should be viewed as a buying opportunity on this current slide. Go with long term call plays and don’t get caught up trying to time a bottom.

Meats
Is the cattle meltdown upon us? We are at a critical and technically significant juncture in cattle’s recent slide that will likely dictate the intermediate term future of this market. I am looking for two confirmation signals that this selloff has some legs to it. First, the market must break and close below 91.95 (June), which is the recent low that is holding a bit of potential support. Second, the market must develop more vertical momentum to the downside on a daily chart. By vertical momentum I am referring to the market’s ferocity in which it develops its trend. It is critical to see a market trend in a V-shaped pattern, or as close to it as possible, to indicate true momentum. At the moment, the current decline is slightly flatter than the previous upswing, which makes it more like a u-shaped pattern that has a greater likelihood of reversing. If the market drops quickly, even by just a couple of points, then the momentum will become a lot more apparent and be a solid confirmation the longer term trend reversal.

Hogs have developed a bullish to range-bound pattern suggesting either a potential top below 80 (June) that would bring it back into a congestive pattern or a breakout above that market which would indicate a bull market. The gut says play the swing trade short here (profit target at 73.60) and place a double stop reversal at 80.50 (if triggered on the stop place your sell stop at 74.60).

Metals
Gold and silver remain in bullish mode despite a potential failure in the oil sector. It seems like metals gravitate towards whichever intermarket correlation backs a bull move, thereby indicating a bull market psychology. However, if the dollar supports and crude turns south (both events that I am forecasting) then there will be little to justify continued upside in metals. Selling premium here is dangerous but the premiums are paying fairly well. Also, a synthetic OTM short play (sell a 750 gold call and buy a 650 gold put for a credit) takes advantage of lopsided premiums. Copper’s recent surge higher could end in devastating consequences for large net long speculators forced into a mass liquidation, sparking a potential domino effect that could place this market 20-30% lower in no time at all.

Softs
Coffee broke through support in low volume action to end the week. The lack of price volatility and volume in these recent downtrends suggests that there is solid potential for large price spikes to the upside. The market is still well above key $1 support and remains a strong buy until that price point is solidly penetrated. Buying straight long calls is recommended to benefit from the potential volatility spike.

OJ has self destructed and large spec longs have been forced to mass liquidate causing a domino selloff affect. This is an excellent opportunity to step in front of this locomotive with some kryptonite in the way of long term call plays. While this market is collapsing from historic highs it is important to note that the upcoming hurricane season is still a big question mark. Some selling has come in after an international weather conference held this week in the Bahamas showed a better than anticipated outlook for the hurricane season. The bottom line is that a post El Nino year’s weather forecast is truly anyone’s guess and the lack of doomsday forecasts for the upcoming hurricane season leaves the market susceptible to sharp rallies if we see a worse than expected season.

Cotton continues to tumble and does not offer a genuine buy signal. This market remains a sell. Cocoa spiked through previous contract highs only to collapse. This is a trademark false sell signal in cocoa as it triggered everyone into the market on the upside and is now clearing out the suckers. While there is no denying that the Ivory Coast has the potential for peace unlike anything we have seen in years, until it happens, especially in the Ivory Coast, don’t buy into it. Sugar is well below my anticipated support area but remains a very good dead cat bounce play and call premiums remain ridiculously cheap. Lumber remains a long term buy.

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.