A Market Review and Opinion Report By Head Analyst James Mound
For the Week Ending July 18th, 2010
General Market Commentary
After the release of the 2010 Mid-Year Commodity Review and Forecast Report (http://futurespress.com/mega-forecast3.html), the WCR is finally back from its long hiatus. The key market forecasts – a Japanese Yen bull run and coffee market breakout both continue to offer opportunity. These moves have likely just begun and should offer more upside in coming weeks and months. The stock market looks ugly and the U.S. dollar has seen the bulk of its retracement - once again making it a buy on dips. Markets rarely, if ever, move in a straight line and these markets are no exception, suggesting these recent moves are well within anticipated retracement levels without going off trend.
Energies
Crude oil is in a congestion pattern below the highs, and I expect the highs to hold and the market to trend lower in coming weeks and months. I recommend a short crude oil play and then a long rbob versus short heating oil (1 to 1) futures spread. Natural gas remains a buy with straight long term deep out of the money calls.
Financials
Friday’s stock market plunge could just be the beginning of a nightmare few weeks for stock traders as the potential for follow-through and quick selloff thru 1000 on the S&P is real. Monday will offer a critical momentum indicator day, although not quite the tell-all day some chart analysts may expect. If the market can drop 20-30 points on the S&P on Monday then downside volatility remains strong and 1000 could be seen very quickly. If the market congests within the Friday range then a close above 1100 by Friday is needed to reverse momentum bullish. Bonds are likely to rise on a stock market fallout, although the right play here is a long strangle. The U.S. dollar is once again a buy on this recent dip, with scaling into straight calls recommended. The euro and pound would be sells, along with the Australian dollar and Canadian dollar. The Japanese Yen remains a breakout buy recommendation, showing strength during stock market declines. I continue to recommend the yen and standby 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
Grains continue to show strength as concerns over wheat’s poor Canadian production and corn’s increased demand from China and general ethanol usage has the markets running. Sell into this move on corn at 4.18, wheat at 6.20 and beans at 10.01, respectively. Rice remains a buy with straight calls.
Meats
Hogs have a clear chart pattern suggesting congestion until 85.10 or 78.20 is broken on the August contract. Give until 86.70 or 76.20 on either side before confirming the break. Live cattle is a sell with puts or short futures at current levels.
Metals
Copper is showing strong signs of a market failure in the making, with a target of 2.38 in short order. The China demand that was ever-present in 2008 and 2009 should disappear in coming weeks and months, forcing a long liquidation in this market and a severe price plunge. Gold and silver remain supportive on general global demand, but overall these markets are in need of correction and I recommend puts for December.
Softs
Coffee continues to build support right near the recent highs, offering congestion ahead of another bull breakout. Cocoa is a sell with the recent rally being a likely last ditch effort to sucker in the longs – puts are recommended. Cotton is a bull play with a massive rally expected during the 2nd half of 2010. Sugar is choppy but should have one more bull push left in it. OJ remains a strong sell with a 110 target. Lumber is a cycle buy ahead of an economic and housing turnaround.
*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.