Energies
A continued uptrend in energies came as a stall out in the buildup of gasoline inventories surprised analysts and concerns over issues in the Middle East plague the market. Technically the crude oil market is up over 9% in twelve trading days, mainly in sympathy to gasoline. Oil production remains strong and there is a glut of oil coming to market as gasoline refineries continue to produce under capacity. The overall view is that this will cause a disparity within the sector and force crude to trade lower as compared to the distillates. While spread trading in energies can be tricky & risky, it can also be quite lucrative if timed well. I suggest bear option spreads in crude oil and a possible short crude oil/long gasoline spread. Natural gas remains range bound but a solid long call hurricane play.

Financials
Stocks exploded higher as the market held the lows of the recent dip and gained momentum in this seemingly never ending bull market. Not much to say here…at least nothing new. It is a bull market that will weed out most of the shorts before ultimately collapsing. Bonds found some price support and I continue to recommend selling premium here. The dollar remains supportive and is likely to continue its uptrend, thus forcing the euro and pound down. The Canadian dollar is a sell with stops above 95. The yen broke key support and is technically looking very bearish. Look for a fresh low on Monday to confirm further downside in this market – a market that has a long way to go before finding historical price support.

Grains
Grains surged this week as dry weather sent the market into a tizzy. Overall the market is getting way ahead of itself and is likely setting up for a pullback in the near term, but the summer outlook remains a strong buy sector wide. If you are long I suggest a partial scale out now and a re-entry 5% lower across the board. While selling premium is dangerous in this market condition, some fairly ridiculous strike prices are receiving real premium and are worth a hard look. Rice is a strong buy and is often left out of portfolios, but in my opinion it has an excellent chance to run 40% higher or more.

Meats
A sharp rally came late last week in the meat sector as short covering ahead of next week’s cattle on feed report combined with underlying technical price support to turn momentum bullish. Monday is a critical momentum day in cattle, as a positive close gives strong confirmation of a possible longer term rally ensuing, but a lower close reverses momentum back in the direction of the bears. I remain in the bear camp. The market is going to have to face incredibly high feed prices and the only way they stick it out is if the market turns bullish in a hurry. Hogs spiked this week as well but I remain on the sidelines here as it appears more choppy and directionless trade is ahead.

Metals
Metals offered quiet trade this week and appear to be setting up the calm before another storm of selling pressure hits this sector. Gold puts and silver call credit spreads remain recommended plays. Platinum is a sell with stops above this year’s highs. Palladium is sneaking up on the market and is close to a bull breakout. Remember, this market trades fairly independent of the sector and if Russia runs into a supply issue the market could spike significantly.

Softs
Coffee was choppy all week but appears to be building a consolidation ahead of another bull breakout. Premiums have dipped a bit and the market is providing a less expensive entry to what could be an historic bull run. OJ got slammed as favorable rains and a lack of hurricane threats in Florida have the market seeing improving supplies come the end of the year. Scoop up some very discounted calls and play contrarian here. Sugar is developing a solid base and is worth a look at some dirt cheap calls. Cotton is rallying on weather and acreage concerns but this market is still inside its channel and a good put play here until a confirmed breakout occurs. Cocoa remains a strong buy and is likely to surge through 2000 despite choppy technicals. Look at this as more of a wide congestion pattern near the contract highs. Lumber is still a buy on its way to 340.



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.