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The Weekend Commodities Review
A Market Review and Opinion Report By Head Analyst James Mound
For the Week Ending September 19th, 2010
For the Week Ending September 19th, 2010
General Comments
I believe a major stock and commodity collapse is likely within the next 10 trading days. Take advantage of the early in the week commodity rally to develop short positions. The momentum escalation in many commodity markets sets up a spike high top and strong price correction. This anticipated volatility to the downside offers numerous opportunities to play put premium spikes in key markets like gold, silver, sugar, cotton, corn, soybeans, cattle and others.
Energies
Crude oil’s recent choppiness goes contrary to recent gains in commodities as well as the stock market. In particular there is a clear divergence between copper and oil prices, which offers a glimpse into the China component. This suggests that some premium is being taken out of the market from a lack of Gulf hurricanes and overall stable inventory levels. A strong punch in the gut to commodity prices will likely be all she wrote for the big 3 in the energy sector and a move to the low $60 range in crude oil is expected. Natural gas remains divergent and the recent bump off channel support on the Oct. contract may be the beginning of a bull run.
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Financials
Stocks are up against critical resistance and I suspect an impressive price plunge in the stock market is coming within the next two weeks. Bonds have supported on a trend line and are avoidable as the impending bear move in the stock market offers more opportunity than playing upside in bond prices. In fact I would be inclined to spread short the mini S&P500 against a short 30 year T-bond. The dollar is a strong buy as it approaches recent support. The euro and pound are sells, along with the Aussie and Canadian dollar. Last week the Japanese government intervened on the yen, hitting the market with about a 400 point plunge. This is when a bull run in the yen can truly get underway. It can often take an intervention to truly release a market. When the intervention came last week analysts and traders did the “I knew that was going to happen” bit, and that shows that the market had certain participants or non-participants that avoided full bull plays as they feared this action by Japan. Therefore it is only after such an intervention that those shorts have no more reason to be bearish the market, and the bulls have little more to fear. However, if the government can show the fortitude to continue to defend 121 on the yen then it could get interesting. Given the momentum in the yen, the history behind Japan’s interventions and the tendency for the yen to be a beneficiary when the U.S. stock market declines, it is likely that the yen will run thru 121 and then really get moving. This is the opportunity to buy the dip and I continue to stand by my forecast that:
The Japanese Yen futures will hit 140 before 80 or I will quit writing the Weekend Commodities Review…forever.
Past performance is not indicative of future results.
**Chart courtesy of Gecko Software's TracknTrade
Grains
A clearly incorrect forecast on my part over the past few weeks in the grain sector does not necessarily mean it is wrong, but rather poorly timed. The setup in grains is clear, and that is for a collapsing trend line failure within the next two weeks. This is technically based on an overall commodity-wide analysis of price exhaustion, and a setup in stocks that should shock the commodity markets down, similar to the way it experienced those massive declines in late 2008. Prepare for this move with straight put plays in corn, beans and wheat.
Meats
Cattle resumed its uptrend last week, but overall is brushing up against critical resistance. The anticipated grain collapse should kill the cattle market, which has experienced its recent bull run due in part to rising grain prices. Hogs also appear setup for a bearish turn, and therefore puts are recommended across the meat sector.
Metals
Metals broke out over the past two weeks and have squeezed some shorts out of the market. With a lack of sellers gold and silver continue to set fresh highs. A strong commodity decline is likely to have a negative impact on metals prices through month’s end and copper offers the best short opportunity with straight puts.
Softs
Coffee is congesting near the highs and may offer one final price surge before retracing to 180. Cocoa is filling some of August’s bearish monthly price bar, and this month’s bar is absolutely critical in the intermediate term outlook for cocoa. The market must reverse and test the month’s lows before the end of September in order to avoid price congestion, therefore use the highs from last week as a critical resistance point. Cotton has exploded through 100 and is a short between here and 110. I expect cotton to decline quite dramatically in the next two weeks. Sugar has hit price extremes and I recommend straight long term puts to play the reversal. OJ remains bearish but recent price action suggests it likely to chop around. Look for a move below 134 to reignite downside momentum. Lumber remains a buy on dips.
*Disclaimer: There is risk of loss in all commodities trading. 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. Past Performance is not indicative of future results. 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. Options do not necessarily move in lock step with the underlying futures movement. 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.