General Comments

Folks, apparently it is time for a big fat WAKE UP CALL for most investors out there, not surprising on the heels of a Santa Claus rally in the stock market and a bullish start to the New Year.  Things are pretty much setting up according to plan, but only a true contrarian can jump into the raging rapids going against the tide.  That is exactly what I am going to suggest you do, as it is a perfect storm setup for the beginning of 2012 and I am predicting a major selloff in stocks and commodities starting….NOW.

Energies

Crude oil is fast approaching critical long term topside resistance, which lies in a $2 range near the highs of 2011 under $115/barrel, with the resistance band between $114-$116.  An ultimate Fib resistance point at $120 should hold as a major trend indicator.  Regardless of topside resistance the crude oil market broke out of near term resistance last week, breaking above what appeared to be a down sloping trend line at $103.  It fits perfectly that crude oil would penetrate thru that weak resistance and create a suckers’ rally to coincide with the recent breakout in the S&P500, as both markets’ correlation have been trading in relative tandem for some time.  I recommend bear put spreads in crude or perhaps something more aggressive on a short term time frame like a ratio put backspread.  Natural gas remains a long term call buying opportunity to play upside volatility.

Financials

The S&P500 likely completed a bullish Mound Ladle Formation^tm and based on that it is setup to see strong downside starting sometime this week or early next week.  The timing of a reversal off a MLF can be tricky as two scenarios typically unfold – an immediate sharp reversal or slightly uptrending channel which can last several weeks, both of which should ultimately result in strong selling.  That being said the fundamental influences – the EU, U.S. dollar and correlated commodity prices – all suggest a greater likelihood of near term volatility and therefore an immediate selloff scenario is believed to be more likely.  The dollar has rebounded nicely from a minor retracement and this week’s Fed speak, earnings reports and possible credit downgrades in the euro zone should all prove dollar bullish.  The yen remains a buy and I continue to stand by my forecast that:

The Japanese Yen futures will hit 140 before it hits 80 or I will quit writing the Weekend Commodities Review...forever.

For more detailed currency analysis please subscribe to my newest premium service – Mound Currency Signals, currently on a new release special pricing promotion of 70% off the regular price, a full year of currency analysis, for just $297 and available at that price only by phone by calling Futures Press at 1-800-963-1561 (int’l 1-386-597-1004), M-F 9am-4pm ET.  In the report I provide weekly and long term directional trend analysis on over a dozen currencies as well as market commentary and a global economic calendar.  It is setup to help both futures and FOREX traders as well as anyone using currencies to hedge investments.

Grains

A solid rally in grains correlated to the general stock and commodities rally over the past few weeks, but lacks momentum for further upside.  I recommend put plays in beans and corn, with a spread trade of long wheat against short corn on the futures side.  Rice remains a bear market with puts recommended. 

Meats

Cattle surged a couple of weeks ago, only to set a strong top and setup an epic failure.  I highly recommend shorting on bounces and developing put strategies if you haven’t done so already.  Feb cattle should remain well below critical resistance under 125.  Hogs are congesting, or seemingly just taking a breather from the heavy selling, and I suspect more downside is forthcoming.

Past performance is not indicative of future results.

Charts courtesy of Gecko Software's TracknTrade

Metals

Gold rebounded to set a nice near term double top and bearish head and shoulders.  Overall both gold and silver have a longer term choppy downtrending price action.  Copper is a strong short long term. 

Softs

Coffee is lulling traders to sleep, but at these lofty prices I would not anticipate the choppy downtrend to persist much longer – heavy selling should be expected, with either a long strangle or just straight deep out of the money puts recommended.  Cocoa downside target is 30% lower, so needless to say sell the bounces.  Cotton is avoidable, albeit bearish.  OJ and sugar both remain sells in a softs sector that has little reason to be bullish at these high prices amid a strengthening U.S. dollar and questionable global economy hurting demand.