This week we have CPI and PPI as well as many other reports coming out. We expect most of these reports to be disappointing to the overall stock market once the week is over. With the VIX index back up near 30, traders better get used to this type of volatility for the remainder of the summer if not year. Stay defensive and hedge your stock exposure. This is not time to bargain hunt, we will alert you when it is but we are anything but out of the woods yet.

Energy Complex (NYMEX)
Crude Oil

Crude oil has seen a sharp pullback that took out most of the "weak longs". Now that they have been shaken out the market looks like it will turn back up and make another run at the highs. We are in the peak of hurricane season for the next 45 days so. That being said the possibility of a weather/fear rally remains high. We are spreading long 75 calls against 80's. Bottom line here is simply that there are more things that could push this market up than down in the near term. Natural gas has finally taken off and we see this as more than just a dead cat bounce. We see this market clawing its way back up to at least 8.50 by the end of this month.

Equities
SP500, DJIA, NASDAQ

Stocks continue to come under pressure. Rumors run wild throughout the course of a day. This is another good indicator that we are in fact beginning a bear phase of the market. When rumors rule, fear is greater than greed and that leads to fast breaks in the market. We do feel that the highs for the year are in and at best we will spend the rest of the year chopping both up and down in a large sideways range. At worst, our models show we could have up to a 20% correction. Either way the old buying the dips method is not likely to work out very well so stay defensive. Remember when stocks go down other markets go up, like gold. Moving at least part of your portfolio into a defensive play like gold is only prudent in times like we are now facing.

Financials
U.S Bonds

Bonds continue to push higher as stocks push lower. This is the traditional relationship between stocks and bonds in times of crisis. Look for this trend to continue on the near term. We are still targeting a move to the 112 handle later this month.

Metals
Gold, Silver, Copper

Gold is currently fighting its own internal war. That war is between the stock market and the Dollar. Traditionally when the Dollar goes up, gold goes down. At the same time when stocks go down gold traditionally goes up. So from day to day the gold market is like a person with ADHD (I have ADHD so I know this feeling well). Focusing on one story one day, and another on the next. Bottom line is while the Dollar is strengthening we do not expect it to be a meteoric rise. At the same time stocks continue to fall, and that we do expect to continue for some time. That being said we expect the fear in the stock market to trump any strength in the Dollar at least in so much as it affects the price of gold. Silver is simply following Gold like a puppy dog and that will continue for the time being. Copper fell just a bit short of our 325 target last week and is now trying to stage a bounce. We see this as being a dead cat bounce not a recovery. This bounce could carry us back above 350 and if it does we see that as a great short entry opportunity.

Grain Complex
Corn, Soybeans, Wheat

Wheat continues to trend higher. Near term we see this trend continuing. Look for Wheat to make a run to and likely through 7.00 in the next week or two. A close below 6.50 would begin to erode the otherwise bullish picture on the daily charts. Corn continues to drift slightly higher. Our model is showing high potential for a strong rally going into harvest. We are using call spreads to position for this possibility. Beans are trying to stage a recovery but a quick look at the daily chart and you can see that we may actually be forming the right should of a longer term head a shoulders top pattern.

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

OJ continues to drift sideways waiting for a hurricane to cause a rally. We still see downside as limited and continue to hold cal spreads through the hurricane season. Cocoa did break down as we had forecast and we ended up making over 200% on our 1950 puts. At this time wee see support near 1800 holding. We are looking at spreading calls this week. Coffee broke out above resistance at 120 and this bull looks like it is about to get some legs. We are targeting a move to 130 by months end. Sugar cannot seem to push through 10 cents and near term we see this market pulling back below 9 cents, at which time we will buy calls. Support just below 9 cents is quite strong and we expect it to hold. Cotton has retraced quite a bit now and we are beginning to see signs of an oversold market. We are expecting support at 57.50 to hold up. If it does we will then spread calls as a way to position for the next leg in this bull market.

Meats
Lean Hogs, Live/Feeder Cattle, Bellies

Live cattle has had a strong pullback but should find support between 89 and 90 this week. At the same time feeder cattle has more or less drifted sideways continuing to build a bull flag. Support just below 114 needs to hold to maintain the bull flag set up. Lean hogs have tried to stage a rally but have so far been unable to make it stick. Resistance at 76 is strong but once broke through we could see a strong rally up to at least 80. Support at 72 needs to hold to remain bullish. Pork bellies have been in a virtual free fall and have built a bear flag on the daily chart. This could point to a move below 70 in the near term.

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.