Likelihood Of Increasing Volatility In Oil Prices

Energies

Energies stalled this week as a trend changing inventory report coupled with some profit taking created a pennant near the highs.  Is Israel about to wage war on Iran or are they just flexing their military might?  Technically the market setup a bear move when it broke out of the pennant congestion to the upside earlier in the week, but the intraday selloff ultimately turned the pattern right back into consolidation mode.  $3 price moves in crude oil should be the daily norm and the likelihood of even larger price expansion and volatility is very high.  Option premiums are through the roof, but only the foolish would naked sell in this environment.  Instead look at long condors or bear spreads with lots of time to expiration.  Straight Dec. 85 puts also could get a solid premium spike on a volatile selloff.

Financials      

Stocks continued south as expected and should test the 1280 mark very soon despite some choppy action anticipated this week.  Bonds also remain choppy and worthy of premium collection.  The dollar’s breakout above 74 needs to get some follow through shortly or all momentum will be lost.  The euro and Canadian dollar held key supports and the market does not seem ready to move out of this area just yet.  Long term I remain a dollar bull and bearish the Canadian dollar on a break below 9675.  The euro and pound a good shorts but all these markets should be played on a long term trend because it is unlikely the short term will paint a clear trend.

Grains

Grain volatility is getting back to some impressive levels, but I believe the action has just begun to expand.  Corn ethanol subsidies are all but over and the market is going to get hurt by a dying meat and dairy industry.  Can this market push higher through summer with all this flooding behind us?  The bottom line is hysteria is here and it won’t last long.  I warn you not to get caught long waiting for the last few pennies of a rally gone way too far way too fast.  Run for the exits and take your profits, and maybe use a few bucks for some ratio breakout put spreads in corn or beans.

Meats            

Cattle is at impressive levels as rising grain prices push the upper limits of meat prices.  Get short with puts across the board as the grain squeeze is on and won’t last very long.

Metals        

Gold and silver got some price support as gold held above 850 and the dollar pulled back off the highs.  This pattern suggests some congestion or a bull run in the market over the next two to three weeks, but I am in the camp of the bears a the long term trend reversal in the U.S. dollar is real and will hurt the metals in coming months.  Take any rally as a value short entry with some December puts.

**Chart courtesy of Gecko Software’s TracknTrade

Softs               

Coffee exploded through resistance on Friday as frost fears and crop inventories in Brazil have traders in panic mode.  This remains a bull market.  Cocoa is overextended and should see weakness as Ivory Coast President Gbagbo arrested key players in a group connected to illegal cocoa trafficking over the border.  Cotton is reeling after failing to follow through on a major price surge, but it is likely to consolidate in the near term as West Texas crop issues are evaluated.  Sugar is riding the ethanol coattails of corn and could turn south in the near term as corn is likely topping.  OJ is still a value buy at these levels.

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