Energies
Oil has been slammed during this stock market selloff and there is significant more downside to come – but not this week. Expect a broad based commodity rally for just a few days and then all those traders that wanted to jump short will get a second chance, albeit at a much lower entry, to get into the bear play in this market. The big reality that oil traders need to face is that the ‘hold’ above $100 is over and the market will fight to find reasons to avoid total collapse in the coming weeks and months. There is a strong correlation to stock prices and the stock market is in the middle of a large pullback. Oil prices could sink to $60 before the year is out, although a choppy volatile decline is expected to last well into 2013. Natural gas has become the inverse play on oil and if you want to play a wild spread then look for continued tightening of the natty gas crude spread. Natty offers a great volatile upside play and the Dec. calls remain undervalued to my anticipated upside volatility heading into summer. That being said this week there may be a pause in this breakout rally and give buyers a shot to grab some value in this market.

Financials
Stocks remain a sell as the long liquidation is happening as we speak. That being said I expect this week to be a stabilization week and a shot for put buyers to grab a decline in the VIX. Bonds have been on a nice bull run as expected, but again this is a break week. The dollar should give way to a comeback in the euro this week, but it will last maybe just two or three days and then its time to get long the dollar once again. The Australian, New Zealand and Canadian dollars are all some of the best long term trend shifting short plays I have seen in a while. This may be a congestion week but it is not worth exiting the bear plays for a couple of day pop. If the dollar does in fact retrace for a few days then it will really provide an excellent look into the upside potential of the yen which should experience a sharp rally. 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
Dry weather has spiked wheat and forced short covering at a time when a lot of large specs got caught on the wrong side. Soybeans continue to offer solid sell signals while and wheat and corn should ultimately reverse this short term rally – making it a great time to develop bear positions in corn. The long wheat short corn spread hit a homerun last week but I would talk the cash and run. Rice is a strong sell.

Meats
Cattle and hogs are both in a dead cat bounce, and should be shorted aggressively here with straight puts.

Metals
The v-shaped rally in gold and silver late last week gave the bulls a last shot at walking at a decent price. This sector is setup for a massive failure and I recommend bear plays short term and long term here. Copper remains a short to 250.

Softs
Coffee is in a chop and even though long term there is more downside I would exit stage left if you haven’t already. Cocoa is congesting during a commodity selloff – this is bullish but I remain a bear long term and would wait on the sidelines until the technicals straighten themselves out. Cotton is clearly taking a bath, but avoidable nonetheless. OJ has plummeted even further than I had expected and is a great example of a market not worth trading. Expect limited downside from here. Sugar is a sell on any bounce.

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