Tuesday, January 25, 2011

Crude oil has shown a willingness to congest near the highs

*Am I Missing the Biggest Commodities Boom in History?*
Watch out bulls - don't go buying in here - this is the panic round;
the 'oh no I am missing the biggest commodities bull run ever' panic -
the kind of panic that gets a bull in trouble because it's the kind of
bull run that gets an early bubble burst. Remember we are in a period
of testing out that rubber band I have talked about. That first
stretch to the highs in 2008 was the move folks, and if you get in now
you are participating in a test of market elasticity that I believe
will not exceed the previous highs. Now that being said one could
argue some markets have exceeded those highs already - markets like
cotton and sugar. Many of those markets did not participate in the
bull run that ended in 2008 and therefore are not in the same scenario
as markets like oil, corn and soybeans. This is long term
consolidation at its most extreme - offering huge moves within a
consolidation phase that tightens from a major previous high. This is
an opportunity to be contrarian and get short commodities - perhaps
for many months - and capture the potential for unexpected downside

!! Energies !!
Crude oil has shown a willingness to congest near the highs, which is
well below many analysts' $100 price target. I do not believe $100
ever gets hit making the current level a great shorting opportunity.
Play with bear put spreads over a 2-3 month time frame. Heating oil is
also set for a reversal, therefore playing a short heat to long rbob
spread is recommended. Natural gas remains a long term buy, playing a
potential spike in this market that should cause a volatility pop for
long term call options.

!! Financials !!
Stocks remain in bull mode, but not for long. In fact, as I write this
I can feel the turn of the S&P500, maybe as early as today. This turn
is upon us, likely having already set the top or very close to it. The
reason behind this top is simple - overbought market conditions. When
the S&P500 was at 700 valuations were stronger than the price would
suggest, but as this rapid ascent to near 1300 has occurred, it has
brought with it a lack of fundamental strength. Eventually the market
needs to even out, allowing real numbers to catch up to price moves
based on expectations. Typically this occurs immediately following an
exhaustive rally, like the one that has been going on for about four
months. Over the past two years there have been four identifiable
rally periods, the current one being a strong vertical incline over an
extended period.

*Past performance is not indicative of future results.*
**Chart courtesy of Gecko Software's TracknTrade
Bonds have been choppy and does offer some potential for premium
collection, although this is preferred on the put side as the market
has room to rally on a stock market decline. The dollar did get
bearish on a technical level last week, a last ditch effort to
shakeout weak bulls in my opinion. If the dollar breaks 8679 then the
momentum has clearly shifted, but until then it is a buy on this dip.
The euro and pound offer short opportunities. The Canadian dollar has
been a premium collectors dream as of late, offering nearly no
direction and only minor technical breakouts. The short is there,
along with the Aussie dollar. The yen remains the lone foreign
currency to buy on dips and I continue to stand by my forecast that:
The Japanese Yen futures will hit 140 before 80 or I will quit writing
the Weekend Commodities Review.forever.

!! Grains !!
I continue to look for a strong technical turn in grains to signal a
clear top - a turn that should occur this week! Get ahead of this
decline with straight put plays in corn, wheat, rice and beans.

!! Meats !!
Live cattle continues to show signs of topping and is a long term put
play on declining feed inputs and waning demand at these extreme price
levels. Hogs remain in a congestion phase.

!! Metals !!
Gold and silver began to turn last week, a leading indicator of a near
term slide in inflation strengthened commodities. These precious
metals led the charge higher and will lead the collapse as well. Put
positions in gold and silver are recommended. Copper is a strong short
on an expectation for declines in China demand.

!! Softs !!
Coffee is testing the highs here, but upside should be limited and the
downside severe when it turns. Cocoa is benefitting from a real threat
of long term export problems and political mayhem in the Ivory Coast.
The shocker from this weekend is a ban out of the Ivory Coast on cocoa
and coffee exports, a sudden and immediate ban that could rattle the
markets. This is typically when one would enter this market short, but
best to wait this week for fundamental developments that may isolate
this market from the commodity-wide selloff I am anticipating. Cotton
is scorching higher on a short squeeze that could have legs. On a
bubble this big it is nearly impossible to see when the turn will
occur, but rather best to accumulate long term puts for the seemingly
inevitable fall from glory. OJ is a strong short, having failed to
rally amid a commodity-wide price surge. Lumber remains a cycle buy to
250. Sugar is a short with straight long term deep out of the money
Source: Fxstreet.com

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