Energies
Oil price volatility expansion continues amid falling prices as the stock market begins to take a back seat to the U.S. dollar/ euro currency relationship. As the euro fails oil demand will likely falter in Europe where prices remain relatively high. The overall outlook for oil remains bearish, along with heating oil and RBOB gasoline. Natural gas, however, is a spread play buy 1 to 1 against a short crude oil.
Financials
Stock volatility is expanding and is a strong indicator of a breakdown move ahead. The employment report on Friday could be the catalyst the market needs to fail miserably and I would be weary of long holdings into that report. Bonds appeared to have topped, but this may be temporary if another wave of stock market selling is ahead. The dollar remains a strong buy, anticipating a breakout move through 80 on the index in short order. Look to buy dips in the dollar or sell rallies in the euro currency. The Canadian and Australian dollars are strong cycle-changing shorts. The Japanese yen remains an impressive bull market, holding onto gains despite strength in the dollar. I continue to stand 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.
Grains
As anticipated the grain stocks report on the 30th killed the market, especially beans which had a big bear shocker of a report. Here are the highlights courtesy of http://www.commodinews.com:
September 30 Grain Stocks: http://usda.mannlib.cornell.edu/usda/current/GraiStoc/GraiStoc-09-30-2011.pdf
Highlights:
- Old crop corn stocks in all positions on September 1, 2011 totaled 1.13 billion bushels, down 34 percent from September 1, 2010.
- Old crop soybeans stored in all positions on September 1, 2011 totaled 215 million bushels, up 42 percent from September 1, 2010.
- All wheat stored in all positions on September 1, 2011 totaled 2.15 billion bushels, down 12 percent from a year ago.
I expect significantly more downside in grains and see the current selloff as an indicator of both the degree in which the commodity markets are currently overpriced and the velocity that they can decline.
Meats
Supply concerns have cattle and hogs surging and contradicting my bear forecast. I continue to see a top here and recommend put positions in both markets on this rally.
Metals
The chart on silver says it all – a shocking liquidation followed by a consolidation near the lows. Neither gold or silver offer anything impressive here to the upside – I would be shocked to see either market rally significantly and see any bounce as an opportunity to get into bear put spreads. Copper is a strong sell with a global demand destruction forcing prices down over the next 12 months.
Softs
Coffee continues to experience strong selling as it becomes apparent that Vietnam is having record production and the supply-side cycle is kicking in to help reverse the long term trend. Cocoa has broken key support and is a strong sell. Cotton is choppy and not worth much attention. OJ and sugar remain sells with straight puts.
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James Mound
Head analyst for MoundReport.com
*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.
