Energies
The energy sector collapsed this week as the potential for stabilizing gasoline inventories and a quieter than feared hurricane season helped spur volatile technical selling that has turned this market sector bearish. Natural gas prices remained strong as the chart pattern has brought in bullish energy specs diversifying from a very profitable long gas position, assuming the gas position was unwound prior to this week. I see natural gas as a great trailing bear play, with put options remaining cheap and a lag effect from a broad based energy sector selloff ultimately bringing this market down. The overall outlook for the energy remains bearish as the potential for problems remains but the reality is that nothing concrete has happened and cannot support this market. Bear put ratio breakout spreads and straight out of the money puts are recommended across the board.

Financials
Stocks remained strong and resilient. This will get old if it hasn’t already, but the bull market is likely to have a severe correction (making the China meltdown look like pussycat standing next to a towering bear) and only the stubborn few will profit. I will say that if you want to be one of the stubborn few then the right approach is a ratio put breakout spread. This involves selling an at or near the money put and using the credit received on the sale to buy several out of the money puts. This strategy should be implemented when you are trading against a trending market and expect the reversal to be extreme and volatile. It avoids upfront cost and moves the risk from a time decaying out of the money put premium to playing against a small downtrend or sideways market. In the case of the stock market, if the market continues to trend up you can buy back the short put and play out the long puts for a major down spike. If the market sells off immediately you have a ratio spread that will likely gain in volume due to a boost in volatility premium.

Bonds found unexpected price support and appear to be testing the upper end of my anticipated 109-114 price channel. I suspect this is an excellent place to buy puts but would wait for a confirming bear signal as the market has a bullish technical pattern at the moment.

The dollar is showing signs of supporting out above critical long term support and is a strong buy, with the euro and pound being shorts. The Canadian dollar is independently strong but a good short at 92. The Japanese yen is a buy with a stop below 82 or use call options to limit risk. It is likely the market will form a base of support above the 8240 mark.

Grains
Grains showed a strong bottom and significantly bullish technicals heading into the weekend as fears of continued weather issues plague the planting efforts of corn farmers. The market has finally broken above a slightly down sloped trading channel after effectively chopping out the faint of heart. The bottom line on corn is weather. All traders care about is if the rain will stop and let farmers plant before it is too late. Planting season generally runs from mid-February to mid- May, with a farmer’s preference always being to plant earlier rather than later. Corn yields are higher when planting is accomplished earlier in the season. I am not sure it even matters if they get it all planted or not. A post El Nino growing season should offer explosive weather volatility during the summer months and the potential for serious crop problems. Obviously, if only a percentage of the estimated plantings are achieved then this will be especially devastating. However, even if everything is planted the market will be very susceptible to the growing and harvest seasons and will likely experience significant drops in yield on their planted acreage.



Planting numbers through last Monday are down significantly, year-over-year, and the weather this weekend was not so hot. Key support held above a previous double bottom on the July contract, and above the double lock limit lows seen following the semi-annual plantings report. Corn had penetrated the double lock limit move, retested the support on three occasions, and now has broken out of a technical channel, and yet when it is all said and done it all comes down to summer weather. This run up ahead of the summer could have some action to it and may last well into July. Buy rice, corn, wheat and bean oil – in that order.

Meats
Cattle collapsed on Thursday as Canada’s 10th confirmed case of Mad Cow Disease was announced. This strong technical break is significant to the price momentum needed to break this market. I recommend short futures on a break and close below 9165. The entire meat complex as a whole remains a short.

Metals
Gold and silver offered choppy and volatile trade this week as a choppy dollar and weakening oil sector brought selling pressure into the sector. The market’s break in silver below the previous week’s lows is significant and technically bearish, which is my outlook for the sector as a whole. The gold chart looks very strong and may very well test 700 again, but put buying here is recommended as a long term play. Copper has seen a long trend back up to the 400 highs without any real pullback. I suspect the market goes and tests that area again and fails miserably. Puts remain expensive but are worth the premium.

Softs
Coffee bounced a bit on Friday after weeks of light volume selling. This market is just above a critical support area and is a strong buy. OJ reversed a strong uptrend to end the week but is an excellent long play heading into the hurricane season. Sugar prices have stabilized a bit and calls remain the way to go here. Cocoa supported and found strength after an ugly decline following a break of 2000, and remains a strong buy. Lumber is a long term buy at these prices. The soft sector as a whole is a terrific place for long plays and is a place of focus for my recommendations in the coming months. Cotton remains the only exception and is a great contrarian’s (at least from a sentiment perspective) short play on its way to 40.

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.