Global Markets:     Europe | Asia / Pacific | Americas | Major World Indices | Currencies & Money | Economic Indicators

The Weekend Commodities Review
By Head Trader James Mound
http://www.moundreport.com
For the Week Ending August 9th, 2002

Energies
Strength in energies subsided this week after Bush’s comments suggesting a later rather than sooner attack on Iraq. Additionally, Algeria’s request for OPEC to allow for additional output was viewed as bearish by the market. I continue to forecast a trading range of $22-$28 in crude, that is until we see extreme action by the US in Iraq. Continue to play long 1 unleaded gas to short 1 heating oil. I expect a dip in prices early next week which would offer a good entry point for the trade. Natural gas increased volatility this week but ultimately fell to sell pressure on its way to 250.

**Crude Oil chart courtesy of Gecko Software’s TracknTrade.

Financials
The rally this week came as expected, as the market continues to fend off the bad news and rallying on any positive hints of a rate cut on Tuesday. Expect the market to pull back slightly ahead of the FOMC meeting on Tuesday as it was made abundantly clear that the market wants a 25 basis point cut. Calling the results of the meeting is anyone’s guess. The market is showing about a 40% bias to a cut on Tuesday and a 90% bias by the end of the year. There are a couple of well respected economists even calling for a 50 basis point cut. All these question marks make a long strangle or straddle on the 30yr a good play going into the report (see August’s Trade of the Month and “Why spread options” featured article at www.moundreport.com for more details). The dollar showed renewed strength this week as a definitive base of support and short term bottom has developed. The gut says the retracement ahead of the Fed announcement is more likely protective short covering and profit taking than a real run. Play the dollar short heading into the FOMC meeting. The euro, pound and franc all took serious hits in the past two weeks and are overdue to resume their respective rallies. The Canadian dollar bounced off of 6250 support and could make a legitimate attempt at resuming an uptrend if the Fed announcement can give it some momentum. Considerable buying must be seen, however, to reverse this technically bearish market. The yen should see some strength after the Fed announcement.

Grains
A relatively quiet week in grains, as specs and funds consolidated the market ahead of Monday’s big crop production and WASDE reports. Look for a massive move off the reports. Bad weather forecasts were dismissed as secondary importance to Monday’s reports. The market is expecting production numbers to be down significantly and could be right on point, sending the market to new highs. Look for a big move on the report to set the trend for the next few weeks.

Meats
Hogs and bellies showed strong signs of supporting out, while cattle offered little to write home about. The quiet trading should set up some downside ahead of the cattle on feed next Friday, while the WASDE on Monday should have a significant impact on the market.

Metals
Gold and silver both showed signs of rallying, with strong technicals holding up heading into the weekend. Silver needs a real break of 471 by Wednesday to have upward momentum for a quick retracement of the recent decline. Gold should react heavily to the FOMC announcement as the dollar and the stock market will both be strongly affected. Copper failed to show support and has little suggesting a rally anytime soon. Platinum continues to be a sell at these prices, while palladium is a value buy.

Softs
Cocoa made up for the 2 day decline late last week, but needs to break through some serious resistance to signal further upside. Rumors of a squeeze in the market should be ignored. Look for a decisive move one way or the other within the next two weeks. OJ continues to surge on improving fundamentals and could be over priced at this point. I was bullish at 90, not so much at these prices, as it appears it has gone up too much too soon and should retrace before heading higher. Coffee continues to silently trade in a tight range awaiting fundamental news to push this market up. The gut says position long for the long term if you haven’t already. Cotton broke to the downside this week, but should be perceived as a buying opportunity on a false move. I see a decent move to the upside next week, playing long futures with stops below 4330. Sugar’s break above 6.00 is long term bullish, short term meaningless. Lumber is a buy with a long term pennant formation suggesting an impending breakout move.

Disclaimer: Past performance is not necessarily indicative of future results. The risk of loss exists in futures and options trading.

< back to previous page