Energies
Major selling in energies quickly retraced over 50% of the recent price surge. This market is in a wide and volatile psychological battle, with bulls arguing the plethora of potential hazards that lie ahead and bears seeing a rising supply situation, a lack of geopolitical issues and a Gulf hurricane nowhere in sight. Crude appears to be setting a perfect short strangle, with the caveat that calls should have a covered side if you are concerned about a major price spike from potential hurricanes. I recommend long one RBOB gas versus short two crude as the long term trend suggests that there is still more money to be made on this trade (that would have paid dividends last week). Natural gas is strong buy with still undervalued calls.

Financials
Volatility continues in the financial sector as the market was exposed to massive selling pressure as the largest bank in France froze billions in funds out of fear of a sub-prime credit market collapse. The market has a right to be concerned. After all some 43 billion dollars in loans were cancelled in the past two weeks as banks tighten the reigns on their lending practices. However a housing crash is not enough to destroy this market. A scared Fed, on the other hand, is. When it is all said and done the Fed will cut rates before year end and the market will be less worried about that and more concerned about investor confidence and declines in corporate profits.

The stock market appears to have set a short term bottom with Friday's reversal action, as a higher daily low held and the market was bolstered by a strong mid-day run. The current volatility should die down a bit over the next several weeks as the market tests 1432 and 1510 on the S&P before ultimately crashing back down. Continue to sell option premium. Bonds have set their high and are likely to stay range bound as the market takes a break from this hysteria. The announcement of the Fed pumping money into the market is likely to have a silencing effect on all this volatility, although intraday market reversals should be more likely to occur throughout the financial sector for a couple of weeks.

The dollar remains choppy as Japan pumps money into their economy to support its currency and financial markets. The European currencies appear ready for a fall and the Canadian dollar is still setting up a long awaited failure.



Grains
A relatively benign crop report did little to move the grains, as weather and crop yields are all this market cares about. Buy the grains across the board with a focus on harvest timing. Recent weather has been supportive and this sector appears to have set their lows for the time being.

Meats
Cattle prices have broken through Fibonacci resistance levels and appear ready to collapse (I feel like I may have said this once or twice before). The back months seem a bit more supportive on a technical level but all the delivery months for this year are in a tailspin. A bird flu scare in Nebraska has 4 countries not excepting imports from that state, sparking the question of whether or not the bird market is in for some serious downside. Lower chicken prices means potential pricing pressure on meats. Hogs also appear to be in collapse mode but the gut says this is yet another false indicator and that the market should be range bound for quite some time. If there was premium to be had here I would take it, but unfortunately there isn't.

Metals
A massive selloff in metals on Thursday looked to confirm my bearish indicators, but a Friday rally all but took it back and turned momentum bullish. This is one tight channel being set in gold and if the market calms down after the two day volatility spike then I would look at scooping up some long strangles; when it breaks out it will be fast and furious. Silver offers a similar setup. Copper and platinum remain strong sells.

Softs
OJ had a mid-day collapse and a general bearish tone to it this week as the WASDE report on Friday did not immediately boost prices. The report read bullish to me and the potential for hurricane activity in the next few weeks is higher than normal as rumblings off of the west coast of Africa are cause for alarm. Coffee remains strong as bullish export data for both Arabica and Robusta beans were reported from the ICO. Friday's option expiration in coffee triggered an end of day price surge that put us above critical resistance. If they continue this momentum on Monday it could be the beginning stages of a massive run in this market. Sugar is choppy and showed weakness on Friday, but the market seems to be pausing ahead of another price surge. Technicals in sugar are long term accurate and short term inconsistent. Look at the longer term price history and it shows a strong shot at a dead cat bounce a good 10-20% higher than current prices. Cotton is in the middle of its recent wide range, but a pennant is the last thing I expect to see here. Cocoa faltered ahead of the Ivory Coast elections and is well worth a call play to trade a bounce back to the recent highs and beyond.

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.