• Home ::
• Technical ::
• Market View ::
• The Weekend Commodities Review

• Send
• Print
• Add To
• Rss

The Weekend Commodities Review

407bc5c5-e5a7-43e7-922a-f984dc373b0a

1

0

For the Week Ending September 27th, 2009

Mon, Sep 28 2009, 12:47 GMT
by James Mound Trading Group Team

James Mound Trading Group

General Comments

Last week the turn happened, and by that I mean the psychology of the market changed. This was not a pause in the rally and it was not a momentum change. It was a psychological turn where bullish news is likely to be downplayed and participants will be looking for reasons to sell the stock market and rally the dollar.
Gold was a leading indicator as some selling came in at what many would have thought as too early - the market never even really tested the highs. This is often a great indicator of a very strong opposing trend developing. I am forecasting monstrous volatility expansion to the downside in stocks, metals and energies this week.

Energies

Crude to $60 and that's by Friday. The market is setting up for a big retracement as the Iran crisis of last week is just that - old news. Look for a strong dollar to push oil to fresh near term lows and a big shakeout in energies this week. Natural gas remains long term bullish but a retracement is in order. The Iran issue is going to take months to matter. This muscle flexing is for show and if you get caught up in the hype of it then you would have called it wrong for years now. Sell into the panic rallies if they should happen and until a missile is fired there is little to buy into here.

Financials

Stocks came off strong from the new highs this past week and a move below 1029 means heavy downside action ahead. Housing numbers were not friendly and this is the start of the realization that the recession rebound will not be all smooth sailing.
Bonds remain bullish as the Fed reinforced the idea of long term flat lining of interest rates. Try 2011 or very close to it. Asian countries may signal interest rate hikes but they are in a far different growth cycle than the U.S. and their monetary policy may not be solid. The Fed will wait until there is significantly less need for capital before even thinking about hiking rates. The dollar remains a major long play here as the bearish stock outlook turns the dollar bullish and commodities bearish. The yen has truly broken out and has changed my mind and outlook for this currency. The skies are the limit here and it no longer feels like a head fake. If the yen actually makes an historic move you could be looking at a doubling in price in a matter of a year or two. I would not have thought this to be possible but psychology is a funny thing and if the market sees the new government as unwilling to intervene then they may push the envelope in this wild west currency. I continue to recommend long strangles in the yen. The Canadian dollar remains a strong short here.

Grains

Corn was the big news of the week as the rumors fly about the potential importing of corn by China. Let's take a bottom line look at this situation. Local buying in China has in-country prices running over U.S. prices. If the spread widens enough then you will see China import corn even though they have plenty of supply. The cost of import versus the cost of getting corn from the far reaches of the country make it an interesting idea. Everyone goes with the cheapest supply option. While many may see this as a potentially explosive situation there is little to suggest that the very logic I am discussing will do anything but tighten the in-country versus U.S. spread. Even if we see an import or two I would not get too excited. This is a sucker's play if you ask me. On the flipside if the drought really killed the supply and we see a squeeze then the situation becomes wholly different as a real China supply crisis could mean double digit corn prices. My gut says this is not the situation as a massive carryover inventory from last year and a bumper U.S. crop this year spells lower prices ahead.
Soybeans remain a sell and wheat's decline over the past two weeks offers a great long entry into a March call spread.

Meats

Cattle remains a strong sell on this recent bounce. Cattle on feed suggests strong supplies and heavy weights. This market is bearish. Hogs turned ugly as well, after bouncing off critical resistance. This market may look bearish but it is more likely to congest, offering a premium collection play without enough premium to justify the risk.

Metals

A big turn in gold and silver last week sets up a complete collapse on a dollar bull run this week. I highly discourage anyone from being exposed with long futures as the IMF is about to come on the market to sell 400 metric tons of gold. This will likely be a private sale to China, but if there is any sign of difficulty in unloading that much gold then watch out! The market is very exposed to a massive collapse on this IMF deal. A bull dollar could make this very ugly, very quickly. Throw in a lack of demand from India when many expected the holiday buying to start early and that might mean the perfect storm awaits the bulls. The market made a very weak run at the contract highs and then turned. This is a critical trend development week for metals and I recommend straight put plays to grab the volatility.

Softs

Coffee really fell apart on trend line resistance and is bearish heading into a forecasted dollar bull run. Fundamentally I remain a long term bull with a buy on a dip to 120.
Cocoa remains a sell with puts. Cotton is still an acreage and supply play buy. Sugar got an interesting market forecast this past week to the upside, but I still feel the market is susceptible to the downside. OJ continues to be a buy on dips.

Published on  Mon, Sep 28 2009, 12:51 GMT