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The Weekend Commodities Review
By Head Analyst James Mound
For the Week Ending April 26th, 2009
Energies
The sideways action in crude oil is turning many bulls into bears, but impatience is not necessarily a good thing. Until June cracks $46 I continue to see the current action as congestion without bias. Natural gas is slowly becoming a great bull energy play as industry participants continue to exaggerate the bearishness of the situation and likely setup a cyclical supply turn to the upside.
Financials
Stocks remain choppy near the highs but lacks momentum. Look for a clean breakout through to 884 by the end of the week, otherwise this bull turns bear. Bonds remain quiet and a premium collector's dream, but the premiums are declining and the risk/reward of that exposure is becoming less attractive for new positions. This is especially true this week as the Fed meeting is likely to have significant volatility heading into and following the announcement. If last meeting was setting a trend then it showed the Fed's willingness to go outside expectations to make an impact. The dollar remains bullish and the euro a sell between 132-133. The yen's bounce came as anticipated, but 105 is about the limit to the upside in my mind.
Grains
Grains are exposed to selling pressure for the next 3-5 weeks and I recommend peeling back bull positions, despite my view of a longer term bull breakout. Soybeans in particular should experience a couple of weeks of expanded volatility, ultimately heading for $13, but may go test $9.50 in the near term. I also like long 1 wheat to 3 short corn for this week. Rice is congesting with a potential bull breakout ahead, relying somewhat on the grain sector in the short term. Look for 12.28 to hold as support on July.
Meats
Exit bull positions ahead of a possible short term grain pullback. At this point this sector is avoidable.
Metals
Gold is exposed to a lack of foreign buying and a strong dollar. The recent bounce should be sold into as the congestion is bearish at this price range. Silver should follow. Copper is a sell at this point as it is likely to retrace to 1.84 in the near term.
Softs
Coffee caught a significant bounce mid-week, reportedly due to a short covering rally coming from a recommended buy from a major house. Continue to buy the dips as this market remains the bull play for 2009. Sugar broke through resistance and is getting buying from India as short supplies pressure local demand. Australia announced lower than anticipated sugar supplies due to unfavorable weather. The market's recent technical breakout requires some follow through early this week, but assuming it stays above 14.00 there is significant upside potential. OJ is getting a boost from recent supply reports, drought and a potential global supply decline. Buy the dips. Cotton continues to go 2 steps forward and 1 step back and has much more upside than many would expect. I remain a call buyer. Cocoa is still a short, but preferably with puts holding a bunch of time on them as I see value there. Lumber remains a buy.
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