Energy Complex (NYMEX)
Crude Oil

Crude oil is also seeing continued volatility. Near term it needs to hold support above 70.00 to keep the bulls interested. Hurricane Dean has so far not had the bullish effect on the market that many had expected. If 70.00 does not hold, then the market will likely test support at 65.00. The daily chart is showing a bear flag, but in the middle of hurricane season it is too dangerous to try and hold shorts. We still expect to see 75 before 65 and continue to accumulate calls and call spreads on this dip. Natural gas is doing the two steps forward one step back dance but remains bullish as long as it stays above 6.00.

Equities
SP500, DJIA, NASDAQ

The stock market continues to see ever increasing volatility. It is also now clearly in a downtrend. A downtrend is defined as a market that makes successive lower highs and lower lows. A Quick look at a daily chart of the Dow or S&P and you can see that downtrend. We continue to feel that the predominant trend is now down and the best we will see out of a bounce is a retest of the highs. We continue to use these rallies to buy puts. Overall look for continued volatility this week. All eyes are now on the Fed. and their September 18th meeting. If Bernanke and company hint at or make a cut in interest rates, the market will stage a strong bounce. Do not be fooled by this bounce as the underlying foundation is the problem and one that no amount or rates cuts can fix.

Financials
U.S Bonds

Look for bonds to continue to push higher in anticipation of the next rate cut. We do not agree with the masses that say that the FOMC is sure to cut on or before September 18th. We feel that the Feds. Hands are effectively tied, making it all but impossible for them to cut or raise rates. So look for bonds to have a big breakdown in the next few weeks as the expected rate cut becomes less and less of a sure thing. Near term, the path of least resistance remains up.

Metals
Gold, Silver, Copper

Gold had a shakeout that now looks like a double bottom on the daily chart. If Gold can hold support above 646, the market remains bullish. If on the other hand support does not hold look for a move back to 600. Longer term we remain very bullish. Looking at a monthly chart one can clearly see a long term bull flag that should point to a test of the Hunt brother highs in the not too distant future. Silver had a much deeper correction than gold and our models show it as being very oversold. We are buying calls to try and catch the rebound we are expecting. We see the market moving back up over 13.00 by the end of the month. Coppers bounce was just a dead cat as we expected. Look for this market to test support at 3.00 in the near term.

Grain Complex
Corn, Soybeans, Wheat

Wheat did in fact test 7.00 but so far has been unable to break through it. Support remains at 6.50. I the market cannot get through 7.00 on a closing basis this week, look for the bears to come out and try and test the 6.50 support level. If that does not hold we could see a sharp break below 6.00. Corn remains bullish so long as it stays above 3.10. Buy a breakout above 345. Soybeans have has a sharp pullback that confirmed the head and shoulders top we mentioned last week. It is now forming a bear flag that should point to a move towards 7.50 later this month.

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

We see the bounce off of 120 in OJ as a possible double bottom. We are taking light long positions with stops below the double bottom. Cocoa has had a great pullback and is now trying to find a support level. We expect support near 1725 to hold and will look to go long once we see confirmation of support holding. Coffee had a nice shake out and we are using this pullback to buy Dec. 125-135 call spreads. Look for coffee to perk up very soon! (Ok that was a terrible joke, LOL). We are now buying March sugar calls on this pullback and expect to see this market begin to rally by the end of the month if not sooner. Cotton is also turning back up and we see this market moving back above 70 by the end of the 3rd quarter.

Meats
Lean Hogs, Live/Feeder Cattle, Bellies

Live cattle is trying to hold support but the daily chart has formed a bear flag so we see the Oct. contract moving to test support at 92 in the near term. Feeder cattle continues to form the bull flag mentioned last week and could see a sharp rally if it can break out above 118 on the September contract. Hogs have really broken down and should test support near 64 very soon. After that look for a sideways consolidation. Pork bellies continue to bounce around and near term we have little directional bias. We will therefore stand aside this market until a clearer pattern develops.

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.