The Weekend Commodities Review
A Market Review and Opinion Report By Head Analyst James Mound
For the Week Ending September 26th, 2010
For the Week Ending September 26th, 2010
A significant decline in oil prices is anticipated over the next 5 days, sparked by a selloff in the euro. Look to capitalize on this with a short term put play. Natural gas must break above the highs from September 16th in order to establish a bull trend.
The stock market has penetrated previous price resistance and looks to be breaking out – but don’t buy into it for a second! On a technical level the S&P had previously supported at 1132, which is 34 points above the prior low and gives some insight into the ‘stretch’ the new high will likely go beyond the previous high. That puts the resistance area between current prices and 1161. I recommend selling the S&P here with futures or put spreads. Bonds, on the other hand, reacted logically to the FOMC meeting statement that left interest rates unchanged and made numerous points that suggested long term low interest rates as well as critical issues facing the U.S. economy. Premium collection opportunities exist in bonds but the threat of a severe selloff in stocks makes the put side worth selling and the call side worth avoiding. I anticipate a strong rally in the dollar to begin this week and last through much of October. This week’s Mound Trade Signals report will reveal my trade recommendation in the euro to play this forecast. The Canadian remains a short. The yen intervention does not appear to have legs to it, and a break back through 121 could spark a massive short covering rally once the market realizes the intervention has come and gone with no net impact. 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.
A massive rally in grains should hit a brick wall this week as the dollar makes a trend reversal higher. The bottom line is traders can get caught up with weather issues in Canada, U.S. harvest and Russian fires, but in the end it will come down to China demand and I feel there is premium in the market for a demand that will not be there. As the dollar strengthens grains will be pressured by a reduced outlook for China demand. This week I will be recommending a way to play short the grain markets in Monday’s premium Mound Trade Signals report. Click here to take advantage of 6 free months bonus subscription.
Cattle has turned bearish on a daily chart and has a lot of downside on a grain correction. Hogs are offering a short strangle opportunity or short condor play.
Gold and silver continue to lack sellers during a period where the markets are bullish during stock market rallies. This is a bubble getting ready to burst. The vertical momentum of this rally has increased, which is what is necessary to create sellers. Look at a straight near term put play in either market to capitalize on a volatility spike to the downside. Copper is a strong short.
Coffee appears to have made a bear turn, and a strong dollar is going to pressure the market further. Despite the trendline support that is fast approaching, the upside potential of that market at this point does not outweigh the downside risk, and therefore stand aside for the moment. Cocoa is losing downside momentum and indicating a potential congestion, however the next few days are critical to reestablishing bearish momentum if the market can close the month out with fresh lows. Cotton is likely to turn here and I recommend puts. Sugar is a sell with straight puts long term. Lumber remains a cyclical buy.
Past performance is not indicative of future results.
**Chart courtesy of Gecko Software's TracknTrade
*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.