Crude oil continues a congestion pattern that suggests a bear break is coming during the month of September. I anticipate front month to stay under $90 as the U.S. dollar forms a base and the S&P resists out below 1200. Momentum should increase dramatically to the downside on a technical break below $79. RBOB and heat should follow suit. The lack of dramatic hurricane impact in the northeast should help let the shorts back in. Natural gas remains a contrarian buy with straight calls on an anticipated volatility pop.
The S&P should see significant technical resistance at 1199, with a close above that indicating a move to 1260. I suspect the market will not make it through that price again. Bonds offer premium collection opportunities to those willing to take the risk as I believe the market is stuck between 120 and 150 for the foreseeable future. The dollar is a strong buy at current levels, being near a congestion bottom. I expect to see the euro and pound selloff this week and the Australian and Canadian dollars to weaken as well. In the next two weeks the Japanese Yen should breakout to new highs once again and I recommend buying the dips, standing by my forecast that:
The Japanese Yen futures will hit 140 before it hits 80 or I will quit writing the Weekend Commodities Review...forever.
The grain sector is in a clear bull run as corn and beans have broken out to the upside as of Friday’s price surge. Hedge funds and institutional trade is helping to break price out on fears of declining yield in soybeans and corn. At this point the technical short covering momentum alone could help to escalate volatility to the upside. I do not expect the supply side will ultimately win out here and I believe declining export demand will ultimately kill the grains, but the trend is clearly up in the short term. Use this move to establish bear put spreads on the way up, perhaps as early as this week if Nov. beans hit $14.54 or Dec. corn hits $7.78. Rice remains a sell while wheat is a value spread buy against short corn or beans.
Cattle and hogs are both in technical bear trends, which are expected to continue for several months. I recommend developing put positions in both markets.
Gold plummeted over $200 after hitting a high of $1917.9 on the Dec. contract. A more than 20% 3 day collapse was met with heavy buying on Friday and sets up a week to remember. Gold and silver have both shown tremendous resiliency and anyone who believes this is the top has probably believed the top has been set several times before. However, this time we have volatility escalation on both sides – the rally then the selloff. Even the current one day bounce has an element of panic to it and is indicative of a market that will soon experience a fear-filled run for the exits. Silver appears ready to tumble as well but both markets should quickly retrace Friday’s rally if the selloff is in fact on. Copper remains a sell on declining global demand.
OJ got little help from Irene and should resume its freefall. Coffee continues to surge higher on supply concerns which at this point have the momentum of a short covering rally behind it. Cocoa may not have much left to its bounce but remains a technical buy until the market penetrates the low at 2846, at which point it is a strong long term short. Cotton is avoidable and the congestion lacks a direction. Sugar is a sell with straight puts.
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