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The Weekend Commodities Review

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For the Week Ending November 1st, 2009

Mon, Nov 2 2009, 12:21 GMT
by James Mound Trading Group Team

James Mound Trading Group

General Comments

It feels like I have been away for some time - between the holiday weekend and a bad flu the free WCR newsletter has taken a back seat in recent weeks so please accept my apologies. Thank you for all the emails and phone calls inquiring about the commentary and no the WCR is not finished - the dollar is a long ways from 70! I have been writing this report for quite some time and do not have any plans to stop writing it anytime soon, but if you want a more consistent weekly report with my actual trade recommendations I am pleased to announce that the new Mound Trade Signals pricing program and new website . Special introductory pricing of $29 is being offered on the report so I encourage everyone to check it out.

In the meantime the markets expanded volatility a little bit as the stock market began the expected collapse after testing 1100. This is going to put pressure on oil and push the dollar higher, two major forecasts of mine through the end of the year. Look for the S&P to test 990/980 very quickly, but ultimately this move down can have far more ferocity if that price area doesn't hold as support. This may put pressure on many commodity sectors in coming weeks.

Energies

While recent shocks to inventory levels have helped to support oil prices, this is not a major concern as levels remain well above panic inventory. Demand remains choppy and I do not expect a strong winter demand. This is a bear play and a half here after the technical break to new highs sucked in a number of lagging bulls. This market has more than doubled from the lows without much of a retracement to speak of. Expect the Iran issue to drag out far longer than many anticipate and this should leave room for a move to $60 on oil as I expect little to occur between now and year end. Gasoline and heating oil should take similar plunges, but look for natural gas to hold up above $4.

Financials

The stock market reeled back off 1100 and showed its inability to handle any cracks in the foundation of the perfect economic rebound theory. Poor housing numbers are just the beginning. Get ready for a bad retail sales run through the holiday season. The stock market is on its way to 990 and 980 supports, and I suspect this could get far worse. The bond market could take a stab at 125 on the 30 year before the year is out. 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 as that country is going to walk away from decades of currency controls making me think there could be an epic bull play in this wild west currency. The Canadian dollar remains choppy but overall this market is due to test the 87 area. The euro continues to chop around as it builds congestion ahead of a bear break.

Grains

Corn continues to attract me as a bear, especially after backing off this China panic and showing an inability to sustain its bull run amid dollar strength. I recommend bear plays in beans and corn with a value buy in wheat anywhere below $5. Rice is worth looking at for a winter put play.

Meats

Cattle sold off as anticipated as this market makes a monumental breakdown after a year of ultimate price congestion. Develop put plays on up days. Hogs may get a demand boost from an expected removal of imports from U.S. hogs from China. Overall hogs are a breakout bull buy.

Metals

Gold pulled back off the highs and silver came along for the ride back down. These markets are hypersensitive to the dollar and not a flight to quality as some would like to think. The stock market is down nearly 7% off the highs and yet gold and silver are selling off - why? Simply the dollar is showing strength because of the stock market weakness, a correlation that is likely to pressure metals for months to come.

Softs

Coffee remains stuck in congestion between 120 and 145, however the next three months should break this market out of this rut. Accumulate wide long strangles here in anticipation of expanding volatility. Sugar remains a buy during this congestion despite some relief of the panic of a few months ago. The potential for a short squeeze remains and that means the market is capable of jumping 30-50% in a blink of an eye. Cocoa is a strong sell as global demand should wane amid a poor winter spending period that kills holiday and Valentine's day buying demand. Cotton is a buy on dips. OJ is choppy but holding up well after a spike high price surge, thereby making it a buy at current levels.

Published on  Mon, Nov 2 2009, 12:37 GMT