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The Weekend Commodities Review
By Head Analyst James Mound
For the Week Ending November 16th, 2008
Choppy and volatile trade wreaks havoc on trend traders, but will setup a price expansion in most major market sectors over the next two weeks. Cover short option premium strategies and take advantage of Monday's possible dip in prices for a great entry into near term long plays.
Energies
As crude breaks through $60 the market wonders where is the bottom? Inventory shifts, OPEC cuts, winter demand and a rise in travel should turn energies bullish. However this sector has a history of price trailing fundamental shifts and remains exposed to stock market selling.
**Chart courtesy of Gecko Software's TracknTrade
Financials
Stock market weakness persisted and a fresh near term low was set intraday before ultimately setting a record for an intraday price reversal with Thursday's rally. That momentum was partially diminished by a give back of more than 50% of Thursday's impressive rally. The first half of the week will likely determine the trend for much of the rest of 2008 as a rally through Thursday's high will ignite a significant price breakout.
Bonds remain range bound as a weak stock market pushed this market near its upper range. Expect a pullback on a stock market rally and continue to leg into premium collection strategies here.
The dollar is choppy and building a congestion pattern for a breakdown this week. Either way price expansion in currencies is about to get reignited. The euro has a nice supportive technical pattern that needs some strength off of a likely Monday morning pullback to stay bullish, otherwise 1.2326 is critical support. The Canadian does appear to have had its rally efforts stalled, and I remain a long term bear. However, I would recommend waiting for fresh lows before reentering short.
Grains
Grains remain in a congestion pattern dependant on its industry wide correlation to determine its next price trend. However, there may be some divergence from this correlation in coming weeks as harvest numbers combine with critical demand information from China to create a potential rally in this sector. If hedge funds do not jump in over the next few weeks this market sector may get caught in a winter downtrend - it's now or never so to speak. China bought a lot of beans from local farmers who couldn't unload the stuff. Keep an eye on this for indicators of China's potential demand for grains in the near future.
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Meats
Cattle 2008 production numbers were a little under last month's numbers and could be a sign of shifting supplies, but is likely insignificant to the near term trend. Hogs also saw a drop in production due to reduced slaughter this quarter. This should help to turn the tide in hogs and make this market go on a bull run through year end.
Metals
The metals sector experienced some strength amid a stock market selloff on Friday, but needs dollar weakness to ultimately turn the trend bullish. Gold breaking 770 will signal a technical breakout and bull move ahead for the entire sector.
Softs
A drop in mold-infested cocoa from Ivory Coast hitting the export market could help to bring prices lower in coming weeks. Coffee remains a strong value buy down at these levels. Sugar production in India is dropping considerably and a forecast for a possible sugar shortfall could turn this market bullish in a hurry. Remember, however, that this was a market with historic carryover inventory for two years and has a lot of sugar to run through before there is any type of global shortage. Cotton prices remain unbelievably low considering the reduced U.S. production and general trend away from cotton planted acreage. OJ is congesting near 80 and could explode higher off these prices in the short term. Buy some Jan. calls near the money and play the spike. Lumber remains a cycle value buy at these levels.
| *Disclaimer: There is risk of loss in all commodities trading. Please consult a James Mound Trading Group Broker before you trade for the first time. Losses can exceed your account size and/or margin requirements. Commodities trading can be extremely risky and is not for everyone. Some option strategies have unlimited risk. Educate yourself on the risks and rewards of such investing prior to trading. James Mound Trading Group, or anyone associated with JMTG or moundreport.com, do not guarantee profits or pre-determined loss points, and are not held monetarily responsible for the trading losses of others (clients or otherwise). Past results are by no means indicative of potential future returns. Information provided is compiled by sources believed to be reliable. JMTG or its principals assume no responsibility for any errors or omissions as the information may not be complete or events may have been cancelled or rescheduled. Any copy, reprint, broadcast or distribution of this report of any kind is prohibited without the express written consent of James Mound Trading Group LLC. Total cost, or cost/credit of trade (as referred to in the trade above), includes the cost/credit of entry, commissions and fees. Typical commission is an approximate mean of commission rates amongst JMTG customers, but can be more or less depending upon the individual account/customer, services rendered, account size, trading volume, etc. Options do not necessarily move in lock step with the underlying futures movement. Commissions at JMTG range from $3 to $27.50 per side depending upon the market traded and specific commission rate charged to the client. Fees range from $2.88 to $7.50 per side depending upon the market traded. |
