Energies
Strength in crude oil persisted this week as the market is flying high and well above previous resistance. The main thrust behind the run-up could be attributed to a plethora of fundamentals offering support including a tight supply/demand scenario, a shutdown on a production pipeline in the North Sea, Iran geopolitical premium, the looming threat of Gulf hurricanes and, most recently, an IEA report forecasting 2.5% growth in oil demand for 2008. This IEA report exceeds the Dept. of Energy’s estimate by .8 million barrels per day, adding fuel to the bulls’ fire. Natural gas remains the sleeper amongst the energy sector, but has formed a technical base of support above a long term channel bottom and appears ready to surge higher on a Gulf storm or general value buying. The Dept. of Energy reported that year over year underground supplies were down 3%, suggesting the market is getting ahead of itself with its own over-supply sentiment.

Financials
Stocks rebounded, as they have resiliently so many times over the past half decade, showing a retest and breakout of the contract highs. Economic reports supplied the catalyst to a market that needs little fundamental information to boost investor confidence. Overall the market has a couple of days to reverse momentum back to the downside (to sucker out some longs that triggered in on the breakout) and may be a good short with stops in the 1570 area on the S&P, but it is difficult to argue the long term bull trend. Bonds continue to channel between the 105 low and a possible test of 110 resistance. Despite some expanded volatility there is little to do here other than seek premium collection on volatile trading days.

The dollar has cracked through critical 80.50 support and lacks any bullish momentum whatsoever. I am a long term dollar bull, a contrarian if you will, and this just seems to me to be a shakeout of serious proportions. The market has every intent of seeing just how far they can push the dollar and just how little the Fed will do about it. However, I continue my stance that the dollar will develop strength long term and reverse this downtrend, but trends in the dollar take time and this downtrend may have more legs to it than I had given it credit for. I recommend developing long term put plays in the euro with a dollar averaging mentality, since timing a dollar support is not something I feel confident in forecasting at this point. The Canadian dollar is choppy after breaking to new highs, and the market may be telling us that it is getting a bit top heavy after the longest sustained rally in the history of the currency. The Japanese yen also appears to be showing its inability to fail despite breaking key support, and it might be getting a little price support from a failing US dollar. However, overall the yen remains a sell.



Grains
A possible v-shaped reversal appeared to be forming in corn after its recent post-planting’s report collapse, but ideal weekend weather has the grain sector in sell mode for Monday. Buy calls shortly after the open on Monday on these dips as the market is unlikely to see follow through. Take advantage of the suck out on volatility premium and spec demand for the calls and buy them on a discount. This will be your first real stab at bean calls since its recent run-up and corn should hold its recent bottom. Rice remains a good long term buy.

Meats
Hogs spiked after the USDA said that prices should be supported by rising demand and slower than anticipated production growth. The market had a nice technical reversal and showed us why there is nothing to trade here. This market cannot seem to break out of its range and is worth a step aside until it figures itself out. Cattle, on the other hand, had broken some key support only to find itself surging higher once again. I remain a put buyer in cattle and expect the market to run down to the 86 cent area by mid-September.

Metals
A failing US dollar and rising oil prices has the metals sector showing signs of life. I would jump on this to sell some call premium in silver and scoop up some gold puts to play a reversal on this possible fakeout. Copper remains a sell with stops (puts recommended as opposed to futures) above 4.00. Platinum remains a sell with stops above 1350. Palladium is a momentum buy, but I am not sure it is worth the exposure.

Softs
Coffee prices continue to see selling pressure and light volume as the market has yet to receive any weather scare out of South America and supply appears to be in good shape. The ICO supported the argument that Robusta prices have held up the market as supply issues have spurred buying. The recent news that Brazil is following Columbia’s lead in a government farmer subsidization program is a significant sign of a pending supply squeeze and price collusion by producers. Buy this dip. OJ prices continue to fall as good rainfall has all but eliminated drought concerns in Florida and a lack of even a hint of a hurricane has the longs bailing and shorts building. The market is susceptible to a spike rally with a major short covering surge supporting any price spike due to hurricane concerns. Buy discounted calls here. Sugar continues to run higher after a long term meltdown of epic proportions and appears set to rally to at least the 11.50 level prior to testing Fibonacci retracement levels. Cotton has surged well past technical resistance as weather issues and supply concerns have this market in legitimate rally mode. Selling call premium would certainly be dangerous, but they are paying well for the first time in years and the market has a decent likelihood of stalling in the very near future. Cocoa continues to be a breakout bull 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.