Energies
Some selling pressure came in this week in what was likely a bit of profit taking in an overbought situation as crude oil approached key $80 psychological resistance. I would buy this dip short term with a target of $84 on front month crude through the last week of August, and then I recommend reversing the position as soon as the first Gulf hurricane threat subsides. Natural gas remains a strong buy with calls.

Financials
The stock market suckered in some bulls earlier in the week as expected, only to fail on Friday and set fresh lows. The market is not likely to hold up very well, but expect volatile and choppy trade to continue. Typical of failing markets, the stock market is probably going to set several consolidation pennants on the way down. This will sucker value buyers into the market and offer funds stable points to exit positions. As I discussed over the past two weeks, the typical fund manager is up over 25% in the past 12 months and is apt to run for the exits with these gains as opposed to standing in the way of this retracement.

Recent comments by Bernanke and Paulson in relation to the sub-prime housing market is helping to create its own resolution by having fund managers reallocate dollars from stocks to bonds. This, in turn, creates lower interest rates and rising bond prices. The flight to quality in bonds will continue as long as the stock market sees volatile downside pressure. However, I remain a seller of bond calls on days in which we see strong stock market selling and rallies in bond prices. The premium collected appears to out way the risks of substantial continued upside in bond prices.

The dollar is choppy and not seeing the momentum to the upside I would have liked to see in order to confirm a bottom. However, given the current volatility within the financial sector, I would suggest a little patience in a bull dollar move. Buy some euro put spreads on rally days in European currencies and look at Canadian dollar and Japanese yen bear strategies.

Grains
Some price support in grains began developing this week as the weather is turning and the optimism over a potential low yielding harvest (when compared to projections given the high corn acreage) is helping to set a potential bottom. Wheat remains strong as the US shortages are being seen through imports and a general market consensus that the crop is all but destroyed. Soybeans need a decent surge up to return to bullish momentum, but it appears volatile enough that a reasonable rally could get us to $10 in a hurry. Expect expanded volatility this week ahead of the crop reports on Friday. Continue to buy grains across the board.

Meats
Rising meat prices have surged cattle to impressive fresh highs, as the market is trying to analyze recent mad cow import issues with Japan and South Korea. A closed door meeting is being held to potentially loosen the chains on the U.S.'s export restrictions to these countries. The 94.80 mark on August live cattle was broken slightly only to falter the rest of the week. This mark, now 95.00, is absolutely critical resistance and should be shorted with stops above 95.10. Hogs have carried a bull run a bit farther than I had given it credit for being capable of. Buy 72 strike puts for October.

Metals
The dollar choppiness has caused a pause in the selloff in metals. It is unlikely the market will hold up if the dollar is not at fresh lows by mid-week. The last rally got the suckers in and this rally will have less life without supportive fundamentals. I highly recommend put plays across the metals sector. Copper has broken below 3.50 and it appears ready to collapse.

Softs
OJ prices remain strong despite a mid-day plunge on Friday. The market is likely to a price surge on potential hurricane issues in Florida and I recommend call buying. Coffee caught on fire late in the week and is in the potential beginning stages of a breakout. Be weary of choppiness this week leading up to September option expiration on Friday, but overall this market is a strong buy. Cocoa is seeing some serious selling pressure, and the recent news of lower than anticipated crop supplies in Indonesia is unlikely to have any effect on a market that is focused on Ivory Coast elections and crop supplies. I buy this dip with calls and expect a strong rally to ensue within the next two weeks. Cotton is settling down inside its wide two-month range and appears like it is consolidating here. Appearances can be deceiving and cotton is no exception. This market is worthy of some long strangle plays. Sugar is getting a choppy rally, one that I expect to fail in the short term but then resume within a couple of weeks.



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.