Weekend Commodities Review (June 19th, 2011)

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Energies

Crude oil prices declined as anticipated, but supported out last week right on critical trend line technical support. Look for crude oil to trade through last week’s low to indicate continued near term downside momentum. Gasoline inventories continue to rise and oil inventories are at some of the highest levels seen in years for this time of year. Natural gas remains a long term buy with straight calls to play volatility spikes to the upside while it is recommended to play the short side of oil, RBOB and heating oil.

Financials

Stocks continue to slide amid global economic concerns and riots in Greece. The dollar should remain strong during this downtrend as investors flee the euro. The pound is likely to strengthen against the euro but weaken against the dollar. The Canadian and Australian dollars are strong shorts, as I believe they have both finished their long term bull cycles. The Japanese yen remains a buy on dips during this period and I continue to standby my forecast that: The Japanese Yen futures will hit 140 before 80 or I will quit writing the Weekend Commodities Review…forever.

Grains

Corn’s massive slide is likely just the beginning of the end for the grain rally. Playing long wheat versus short corn is recommended. Soybeans have held up during this slide, but I suspect beans are susceptible to a significant selloff in coming weeks. Rice remains a sell.

Meats

A strong technical reversal in live cattle was sparked by a spike in cash prices. The cash price jump was attributed to a rise in exports, or at least an expectation for a rise in exports, helping to increase packer margins. I believe this is mostly a technical breakout that forced a short covering rally, offering a potentially volatile market reversal to new lows if the move is capped early this week. Everyone may feel they missed the bottom as the market spikes up, and if traders get caught on a quick reversal to new lows they will likely panic for the exits and create a stronger selloff. The hog rally is expected to stall this week.

Metals

India’s rate hike is another indicator of potential declines in gold demand, however prices continue to remain strong despite gains in the U.S. dollar and declines in key commodity prices. Consider it a delayed reaction. Gold and silver have had a recent history of getting ahead of expected support in the stock market or turns in the U.S. dollar, however they play catch-up when the moves get legs. This week should be critical for establishing the coming bear trend in the metals sector as further declines in the stock market, energies and grains are expected.

Softs

Coffee broke key support and appears ready for a major pullback, furthered by weakening energy prices and concerns over the global demand outlook. Cocoa is in a tight technical channel, needing to break below 2850 on the September contract to regain bear momentum, which is likely to occur this week. Cotton remains a sell. Sugar’s resilience during this rally is notable, however the accumulation of deep out of the money long term puts is recommended. OJ is a sell with straight puts.

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James Mound
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*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.