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James
Mound Trading Group
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WWW.MOUNDREPORT.COM
The Weekend Commodities Review
By
Head Analyst James Mound
For
the Week Ending January
25th, 2009
General Comments
We received an unusually high number of
emails this past week asking what happened
to the weekend review last Sunday.
The WCR is published every weekend,
normally posted and emailed Sunday nights,
with the exception of holiday weekends.
In observance of MLK we did not
issue a report last week, and while some
may consider the SuperBowl
a holiday, the next WCR holiday weekend
will not be until President's Day.
If you would like more access to James Mound
and his market views and trade
recommendations visit www.moundtradesignals.com
to learn more about our premium offerings.
Energies
Energies first attempt at bottoming after its monumental collapse from
$147 has been met with choppy trade and a
bit of congestion.
This is a very bullish short term
pattern as fund managers are given an
opportunity to clear out positions in a
tight range (as opposed to the free fall
environment of the past few months).
This organized liquidation sets up
a strong breakout rally that still has
time to be a v-shaped market reversal.
There are two great arguments out
there - one is how much more downside is
there? - $30 crude, $25 crude - how low do
we go before it's a screaming buy?
Thus there is limited profit
potential for a short play here and a
short covering rally would ensue.
The other argument is that this global economic crisis is no
environment for spiking demand and that
upside is limited.
This sets up a congestion pattern,
but it is likely short lived.
The upside in oil can be sparked
any of a multitude of fundamental
influences - Middle East, China growth
resurgence, cold weather, etc.
Now is the time to buy futures with
put protection.
Natural gas is breaking well below
support but the long term chart suggests
that current levels could be the last
major area of support before a move to
2.50, so scooping up heavily discounted
calls (relative to the last couple of
years) for an upside volatility spike is
recommended.
Financials
Stock market weakness has persisted since
the beginning of 2009 as fears of a
banking collapse remain ever-present and
concerns over the government intervention
with the new administration are heightened
as Obama took office.
The chart is ugly, the fundamentals
are nasty, but this is a true second
chance buying opportunity in stocks.
Expect a 30% rally by April or May
and a great play for the first half of
2009.
Why you ask?
Simply the fear is measured against
the panic that took place only a few
months ago.
The situation may not have hit
bottom but the panic did, and that means
the lows are in.
Bonds are rocketing south after setting one
of the more peculiar looking highs I have
ever seen on a chart (the OJ chart when it
was at 210 was one of the only other times
I have seen a bridge top like that).
This market can conceivably fall to
110 but realistically this market is
acting volatile as it tries to find the
bottom side of what should be a year long
range and volatility decline.
Sell put premium and then sell call
premium on the bounce, thereby legging
into a solid intermediate term strangle.
Expect the range to be 118 to 137
for much of 2009, which offers real
premium collection given current
volatility levels.
The dollar is making its second major rally
in less than a year.
Expect an attempt at 98 on the
index, setting in motion a major euro and
pound price collapse.
The yen is hanging in there but the
current chart formation sets up an
unbelievable trading opportunity with
puts, as 115 is a near perfect double top.
This allows for a near term play
with sensitive put options and a bailout
exit if the market closes above 115.
Otherwise downside volatility can
be vicious.
Play the move to 106 then 100.
The Canadian dollar is congesting
and premium collection may be worthwhile,
however the gut says just wait for the
break.
Grains
Grains
all developed strong bull pennants as they
recovered from limit down reactions to the
WASDE and crop production numbers.
Bottom line is I would love to buy
grains but they are too early to the
party.
Expect strong upside come
March/April, but until then there is a
bear play here.
Puts across the board.
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Meats
Hogs are choppy but remain a buy in and
around these levels.
Cattle has another 10% more
downside before it tests a 6 year lower
band of support, but I am not jumping at
trading the downside here over the long
term.
If grains fall short term like I
expect, cattle should make that leg down
by mid-February, making short term puts
not such a bad play.
Metals
Amid a dollar rally gold makes a momentous
move, taking silver for a bull run into
the weekend.
Can gold really push higher in a
strong dollar environment?
The answer is yes if two elements
collide.
First gold must be a flight to
quality buy, which is a big part of this
past week's move as prices surged on fears
of a banking collapse.
Second, the dollar must not
breakout in a clear uptrend, which there
is little to suggest this will be the
case.
That means that next week, as early
as Monday, the gold panic buying will
reverse.
This is a great volatility play to
the downside and gift by the bulls to the
bears in my humble opinion.
Now I have no intent of staying
with a sinking ship, and the great thing
about the current price is there are clear
levels of price resistance not too far
away.
926, 986 and 1015 respectively sets
up three clear paths of resistance.
This means a short play with
straight puts (or better yet bear put
spreads) can offer a great risk to reward
ratio with a clear exit on a break to
fresh highs.
Look at June options for the best
premium retention while still offering good
near term profit potential, but look at
March options for the real volatility
play.
Silver is offering similar action
and opportunities.
Copper is likely bottoming here.
Softs
Coffee
made some strong bullish technical moves
as it set fresh highs coming off a
stop-triggering intraday selloff on
Wednesday.
The 2009 crop is setting up to be
low and global demand remains strong.
This market is on its way to 130 in
short order.
Cocoa remains resilient but is
unlikely to see any more upside.
A break above 2800 makes this
market breakout bullish, but until then
this is a great entry into some puts.
OJ caught a bid this week, for
about 20 minutes, on frost fears from a
cold spell in Florida.
This season appears to offer some
late cold weather for Florida, setting up
continued frost scares.
Unfortunately this market is paying
it little mind.
Nevertheless, OJ remains a value
buy. Cotton
is making a breakout move to the upside,
something long overdue in this cycle
shifting market.
Global cotton supply is far
outweighing demand, but if you look at the
cyclical change in plantings it is
unlikely to remain oversupplied for very
long.
Calls will get a boost on a
breakout to 60 and this should happen very
quickly.
Sugar is on the cusp of breaking
out to the upside, but is right on topside
resistance between 13.00 and 13.14.
If it breaks that mark it should
run to 15 in short order.
Lumber has broken through some
historical support but is a screaming buy
at 150.
This is a great buy and hold market
as it should be the first to turn on an
economic turnaround.
**Chart courtesy of Gecko
Software's TracknTrade
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