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The Weekend Commodities Review

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For the Week Ending November 15th, 2009

Mon, Nov 16 2009, 09:03 GMT
by James Mound Trading Group Team

James Mound Trading Group

General Comments

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Energies

I believe was have seen an intermediate term top in energies and see Wednesday's bearish surprise inventory report as a trend shift indicator in a market sector that looks to be flooded with supply during a worse than anticipated winter demand period. Bear put spreads in crude oil are recommended. Natural gas still seems exposed to a little more downside but the upside potential versus the downside risk is about even so I would avoid this market until a strong base is formed.

Financials

The stock market is testing the highs, and with a lack of a significant secondary top forming last week there is now just as much likelihood of a break to new highs as a topping prior to the high. This means long term bear positions are still highly recommended but the short term is less certain and should be approached with caution. Retail sales this week should set the tone for downside through the holiday season, but until we break through 1056 I recommend heading being a cautious bear. Bonds remain a buy with stops below 117. The dollar continues to be a strong buy as I believe:

The dollar will hit 86 before it breaks below 70 or I will stop writing the Weekend Commodities Review... forever.

The yen remains a strong buy on dips. The Canadian dollar held the double bottom support it set two weeks ago and is bullish until 92 is penetrated.

Grains

Strength off of last Tuesday's reports came as expected but I feel strongly that this move should be sold into immediately as strong downside is expected through the winter. Weakening global demand combined with a strong dollar and solid supply make for shorts across the board, with a value buy in wheat being the only exception in this sector.

Meats

Cattle continues to offer a bear play as we break a long term congestion pattern to the downside. Hogs are a buy between 50-53 depending on your dollar average in strategy and sense of urgency. Personally I would rather see the market set fresh highs before jumping long as the break here does not have definitive support.

Metals

Gold's short squeeze is supporting metals pricing during a choppy currency trading range. This means the squeeze could have some legs and calling a top is futile. Long term put plays are recommended in gold and silver, with June as a target month for gold about 20-30% away from current prices. Copper is a strong sell at current levels with short futures and call protection. Platinum also remains a sell with a more stable production environment and supply situation stabilizing that market moving forward.

Softs

As forecasts come in for declining global production in many key growing regions coffee continues to trend down, playing contrary to fundamentals. I expect the market to test the mid-1.20s and would avoid buying in the near term and really until 150 is penetrated. Cocoa is on the down slope and puts are highly recommended. Cotton is a buy on dips. Sugar is a breakout buy, but the panic is certainly gone here so you may be waiting a while. OJ is a buy on dips although this market appears to be in a strong uptrend worthy of just buying in general. Lumber has peaked my interest as a buy here with straight May calls.

Published on  Mon, Nov 16 2009, 09:03 GMT