James Mound’s Weekend Commodities Review

Financials

The S&P500 has developed an interesting multi-pronged technical setup on a daily chart that indicates a strong decline to 1203, possibly as low as 1184 in the near term. I believe the stock market rallied based on the Obama extensions of the Bush tax cuts, but overall the market will find weakness in global economic concerns and a reversal in premature bond selling. As money migrates back into the U.S. dollar from a continued exodus in Europe it is more likely funds will pour into bonds than an overbought stock market. Expect a dollar run to 83, a 3-5% drop in stock prices, and a decent bond retracement to 126 over a relatively short time frame. The euro and pound remain sells with the Canadian and Aussie dollar worthy of long term shorts. The Japanese yen remains a bull bright spot amid a sea of bearish foreign currency plays, with money moving to Japan as it leaves Europe and investors lack alternatives. I continue to stand by my forecast that:

Grains

Corn, wheat and soybeans have all developed congestion patterns near the highs, not altogether a bearish indicator but rather a suggestion that momentum and upside volatility have subsided. My expectations for declines in the stock market and energy sector are likely to hit the grain sector as well, given the lack of fundamental influences in grains this time of year and the overall psychology that global economic weakness means declining grain demand. Put plays are recommended across the board.

Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Meats

Cattle is testing key trend line support and should fail this week. Hogs remain choppy and avoidable for the time being.

Metals

Gold and silver remain near the highs with choppy intermittently volatile trade lacking clear near term direction. Get short heading into the last few weeks of 2010 as a liquidation event is expected in both markets in the near term. Copper offers a fundamental long term sell ahead of a China slowdown causing panic selling in that market.

Softs

A short covering rally in coffee appears underway, however this move (possibly to 230) is expected to be short-lived and worthy of a put play on a further move up. Cocoa has established a likely near term top and is a sell with straight long puts. Cotton is attempting to pull off the miraculous feat of new highs after such a dramatic collapse. This is unlikely to occur, mainly on a technical level as it is very rare to see epic highs followed by an extreme retracement followed by a rapid return to the highs. Instead, look at this as the market setting a secondary top for a less volatile selloff ahead. OJ is a short with puts. Sugar is a sell using bear put spreads. Lumber remains a cycle buy on dips.

Pitguru Review for November 1st: Energies & Metals

Energies

By PitGuru Daniel Cronin

Crude Oil still stuck in this trading range but after this week the market will have much better direction on where it wants to go after the FOMC meeting and the non-farm payrolls at the end of the week. Crude has been stuck between $80 and $84 for the last month now but speculation over the weekend led that the Federal Reserve will announce another round of credit-easing measures to help spur growth in the U.S helped the Euro rally and crude as well above $82 per barrel. WTI spreads have gained in recent days and so has the market down from support at $80.50. I believe the market will rise up to the resistance of $82.70 today before any news comes out, and then it’s all fair game from there. $84.50 definitely can be tested if credit ratings ease even further so keep an eye out for this number.

Natural gas has been on a real surge since the November contract came off the board. December Natural is now above $4.08 looking to test key resistance of $4.10 as this market has shot up since consecutive inventory reports have come out better than expected. This market looked to be headed to $3.00 but after the depressed November contract went off the flood gates opened up and buyers came in chomping at the bit to get a piece of the market. For now it needs to see a nice close above $4.10 to continue momentum.


***chart courtesy Gecko Software’s Track n’ Trade Pro
Past performance is not necessarily indicative of future results.

Metals

By PitGuru Daniel Cronin

Gold and Silver both have rallied since being semi liquidated the last two weeks as new buyers came into the market as the Euro rallied against the USD ahead of the FOMC meeting this week. Per Bloomberg, “Precious metals have gained this year as central banks maintained low interest rates and governments spent trillions of dollars to spur growth. Silver has advanced 48 percent in 2010 and palladium has surged 60 percent, both beating gold’s 24 percent rise. Precious metals have outperformed global equities, Treasuries and most industrial metals, boosting investment in exchange-traded products backed by the metals.” (1) I think an easing of the rate will surely send Gold up above $1,365 and Silver past $25.00 as these markets already have momentum behind them - another positive for them will only send these to higher heights.

Copper rallying back up to $3.80 from last week’s low of $3.71 amid the FOMC meeting as both equities and Euro rise. $3.92 is key resistance so this market will be watching out and waiting in anticipation of the Fed's next move. For now markets are trending higher but can be thrown for a loop if the Fed decides not to do anything and should unemployment rise, sending Copper back to $3.71.

1 http://www.bloomberg.com/news/2010-1...s-meeting.html

PitGuru.com Weekly Grains Review for Oct 25th

By Matthew Pierce

Friday saw a choppy lower session with both corn and beans following the script gravitating back to the highest open interest strikes at $5.60 and $12.00. This kept most of the trade subdued throughout the session with nothing exciting on the fundamental side to direct interest ahead of the weekend. There was little expected so the trade allowed options to dictate the pace. Over the weekend I saw 4364 of the SX 12.00 calls exercised with 226 puts abandoned…a good move in hindsight. In corn I saw 3016 calls exercised and 5568 puts. The puts were thought to have futures against them. These were the only two features with all other floor commodities showing only marginal interest in Nov. The overnight session was dictated by macro factors with the USD taking another dive following nothing coming out of the G20 meeting. Crude is up on extreme food oil demand with palm screaming higher making 2 year highs. Chinese markets were higher as well helping the corrective upside sentiment. The day session looks to open in line or stronger than the overnight with support from the Euro, Chinese demand, Aussie weather and now talk of standing water delaying plantings in the SW of the US HRW region.

Today’s calls are as follows: Beans are called 15-20 Higher looking at the contract high at 1235 (SF) as the first bull target. Corn is called 10-12 Higher looking to go above Friday’s high with last week’s high at 579 ½ the first upside target with the contract high at 588 offering a second level this week. Indicators remain in the upper end of the range but are still below the contract highs. Wheat is called 7-10 Higher looking to achieve the 50-day MA sitting at 702 ½ this week. Meal is called 2-3 dollars Higher looking at last week’s contract high at 340.20 as the only target. Bean oil is called 130-150 Higher leading the way on the floor looking to achieve the 50% weekly retracement level at 49.77.


Concerning weather: Weekend rains were far greater than expected in the SW region of the US with many areas that needed rains receiving them for HRW plantings. This system moved slowly across the Midwest with all harvest activity stalled. This should ease the record rate seen for this year’s harvest allowing time to catch up with the markets. There is some talk of too much rain in areas of N. TX, NE OK and SE KS but this is not a major factor yet. The benefit of the overall rains outweighs the spotty standing water. The above map shows a bearish forecast with only the far NE corner of the Corn Belt still looking at any rains to stall harvest. Looking at Australian weather, the NW’s opportunity for rain is stunted today as compared with Friday’s forecast. The forecasted rains have been pushed off to this weekend with fading confidence in the overall impact this will have. Without these rains Aussie NW production will fall to less than 50% of last year’s crop. China is looking at a very cold forecast possibly damaging their recently planted winter grain crops with wheat a serious concern. This is a short lived situation but one that deserves watching due to wheat corn relationship spread levels.

Looking ahead at this week I see commodity demand as the major factor. Chinese demand in particular is the focal point of the trade with continued rumors floating all over the trade that a major corn deal is in the works. This only enhances the availability of profit in long option and volatility plays heading into Month End. I expect to see more and more OI hitting the trade as moving into Nov due to profit potential versus a staggering US equity picture. The retail sector looks to suffer even though estimates are above last year. The 5-year trend remains low and slow not offering any incentive to join the party. On the other hand, commodities continue to gain in open interest; commodities have a real supply and demand story coupled with massive world currency issues. This train is just warming up for all late comers.

***chart courtesy Gecko Software’s Track n’ Trade Pro
Past performance is not necessarily indicative of future results.