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The Weekend Commodities Review
By Head Analyst James Mound
For the Week Ending April 19th, 2009
Energies
Crude oil supplies continue to skyrocket as refineries play passive to the current demand plunge. This is a recipe for disaster and a heck of a lot of exposure to hurricane panic and global demand spikes. This market is channeling and could very easily slip downward if the news continues to be stagnant. Until this market breaks to $44 or $56 I wouldn't get in the middle of the battle. Gasoline seems most exposed to this refinery slacking, but I would only get long term bullish because the bottom could easily be tested in the near term.
Financials
The S&P inches closer to my 900 April target but the lack of volatility on this uptrend is unimpressive. The market is up near 25% in less than 2 months. If momentum is to sustain itself for another leg up there needs to be some volatility behind it. There should be a forced short covering rally here that just is not taking place, but time is a matter of perception and I hesitate to get overly impatient at this point. I do expect a major move this week and would like to see 848 hold as support.
Bonds continue to offer premium collection opportunities but little else. The dollar is on a nice run and the euro has done little to suggest anything but fresh lows ahead. George Soros wrote in his recent book about the idea that the dollar's bull run in 2008 and early 2009 was significantly influenced by the foreign entities covering U.S. debt with U.S. dollars. This is an intriguing concept because I would think it is fairly undeniable that the credit crisis forced foreign investors to get squeezed out of U.S. loans, however I do not believe that is what is really going on here. The ECB is just simply incapable of capital infusion and aggressive monetary policy. It is up to the individual countries that make up the ECB to institute monetary policy to match the U.S. and the likelihood of that happening is very small. There is economic weakness in Europe that is truly staggering and the idea of the U.S. diluting currency for a treasury buyback and foreign investors covering U.S. debt is just not enough in my mind to offset the fall of the European economies. Let us not forget the euro nearly doubled since its creation and this retracement is not even at 50% yet. The market has room for further dollar upside and more euro downside. The Mexican Peso, a steady topic of conversation for me of late, has setup a reversal top and is likely on its way back down to test the lows. The yen is a bit exhausted at the moment and it would not surprise me if the market bounced a bit.
Grains
India is expected to lift a ban on exports for wheat and rice that is sure to open up some supply on the market. Those two markets have been pressured as beans continue to rise. In the end beans will drive grain prices higher if they continue to $12.
Meats
Still bullish.
Metals
Gold looks like it is about to fall off a cliff with the dollar bursting higher and the stock market trending upwards. The 865 level is critical, and if broken through on a closing basis the market has a clear shot to 820, and silver to as low as $10.20 on this next leg. Copper remains a bullish economic recovery play, although to me upside is limited at current levels and a pullback is in order short term.
Softs
Coffee dipped as several supply estimates came out last week and put pressure on bulls. It is very early to get caught up in supply forecasts and I am a buyer on dips. Cocoa retraced from the highs as expected and I am aggressively bearish on bounces at this point. Cotton remains bullish. OJ is forcing some short covering on this recent rally, supported by drought conditions. I continue to see OJ as a major bull play in 2009, and recommend buying the dips. Lumber is a buy on this dip, with a target of 218 on the next run up. Sugar is at a critical technical juncture. The market has heavy resistance between current levels and 13.76 and the chart pattern suggests that if the market holds below 13.47 that there could be a very quick nosedive to 12.30. I suspect this week will determine the intermediate term trend for sugar.
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