Energy Complex (NYMEX)
Crude Oil

Crude oil remains in an uptrend albeit a more volatile one now. We see a test of the $80 level as all but a sure thing in the near term. We are one "event" away from a dramatic price spike to the upside. The event, what ever it is, (hurricane, terrorism, OPEC, refining problems , tankers sinking etc), could push us right through the $80 level and ultimately test the $100 level and beyond. That being said owning a put or two in crude oil is anything but foolish. When the majority agrees that something is a sure thing, you can almost always bet against it. So keep that in mind the next time you want to put all your chips on crude oil. We are advising people to purchase the Oct. 75 puts as a spec trade that could work out well if the second half of hurricane season is as benign as the first. Natural gas is trying to turn back up but it needs to climb back above 7.00 in the near term if it is to regain the attention of the bulls.

Equities
SP500, DJIA, NASDAQ

What a wild ride! Last week was exactly the type of thing I have been talking about for some time. That is why in last weeks issue we continued to advocate buying puts and keeping stop loss orders tight. Today we see the beginning of a recovery but our models do not show this dip being one to buy and hold. In the near term buying this dip may work out well but do not get lulled into a false sense of security. This market is not as strong as the talking heads on TV would have you believe. There will always be pockets that perform well even in a bear market, but as a whole the phenomenal run that stocks have had these last few years is ending if it is not already over. There is such thing as a bear market and those that doubt that will learn the hard way.

Financials
U.S Bonds

Where do stock traders run to when stocks fall? In a word: Bonds. Ad I do not mean Barry Bonds. The typical pattern when we have a sharp sell off in the stock market is for the "fast money" to move over to Bonds as defense very quickly. After that they tend to turn to Gold and other physical commodities that have historically performed well in times of crisis. We expect to see bonds test the 112 handle sometime in August.

Metals
Gold, Silver, Copper

Gold staged a dramatic pull back in the face of a dollar that is bouncing off of 26 year lows. It is always funny to see how fast gold goes down when the dollar goes up and how slow it goes up as the dollar is going down. Bottom line here is simple. Risk in the overall marketplace is being reassessed and that can only stand to benefit gold. Everyone knows that in times of uncertainty gold is a refuge for the masses. We are buying this dip and will continue to do so unless gold trades below 640. If that happens we will simply cover and wait to rebuy even lower. Copper on the other hand has formed a double top and could see a significant pullback in the near term. We are advising shorts with stops above 380.

Grain Complex
Corn, Soybeans, Wheat

So far the grain complex has managed to hold critical support, so now the question is will it last? In the near term we believe it will. But that is not all good news. In soy beans we see a potential head and shoulders top forming. To confirm that we would like to see soybeans stage one last rally possibly back up to 8.75 after which we expect to see a dramatic pullback that takes well below 8.00. Wheat also needs to stay above 6.25 or risk a bear raid. Corn is forming yet another bear flag and this one should point to a move back below 3.00. Overall we continue to believe that the highs in grains for the year are already in and the path of least resistance remains down.

Softs (NYBOT)
O.J, Cocoa, Coffee, Sugar, & Cotton

OJ is trying to get a rally going but with still no hurricane in sight the market is lacking its catalyst. We continue to favor the long side and advise buying the Nov. 160 calls. Cocoa had the break down that we had been expecting and we more than doubled our money on the 1950 puts. We continue to see this market moving lower this week with a target of 1850. Coffee is setting up for a large rally. Buy or spread calls. Sugar is consolidating and drifting sideways. We see a brief pullback below 950 in the near term which should be bought as longer term we see this market moving back above 18. Cotton continues to recover and we read the daily chart patter as a bull flag pointing to a move above 70 before the end of the quarter.

Meats
Lean Hogs, Live/Feeder Cattle, Bellies

Live cattle met our objective of 94. We see this uptrend continuing and testing 96 in the near term. Feeder cattle also continued higher and we see this market consolidating the recent gains in the near term. Hogs are still drifting sideways but we still see this market forming a bull flag indicating higher prices are coming. Pork bellies moved slightly higher but have yet to take off. Look for this market to begin to move up later this summer.

Derek Frey is Head Trader at Odom & Frey Futures & Options.

Risk Disclaimer
Past performance is not indicative of future results. Trading futures and options is not suitable for everyone. There is a substantial risk of loss in trading futures and options.