Commodities Market Summary For The Week Ending September 7, 2008

Energies

A safer landing then anticipated of Gustav in Louisiana set the stage for another oil plunge and potential test of the $105 area. This market has some support at 105, 100, and 92.70 respectively. I continue to see these support areas more as targets than potential bottoms. However, oil is down over 25% within a short time frame and the market is likely to congest between 90 and 130 between now and the end of the year. This means defined risk premium collection is recommended (short condors or calendars).

Hurricane Ike is on the move and may wind up forcing an evacuation in the Gulf and might even take a run at Louisiana or northern Texas. The air channels are pushing the storm through Cuba but allows for a northern curvature and strength regeneration as it heads into the Gulf. Coming out of a large landmass the storm really has a much wider than forecast potential track and therefore the exposure will likely be there for a few days. We are still in the heart of hurricane season with more storms on there way. This may be an excellent time to make a storm play on natural gas for a spike through the most recent highs.

Financials

Stocks took a solid beating, as anticipated, but some choppy and volatile upside should be expected in the near term. Employment was ugly, but will likely be redeemed on the revision come next month. However, this leaves three weeks of negativity for the market, but expect the S&P (^GSPC) to stay between 1220 and 1300 in the near term. Bonds shot higher amid the stock plunge, but will have a difficult time breaking through 121 and is a short at these levels. The dollar continues its bull run and my 80 target is upon us. This market probably has another leg up to 82 and then it will develop a pennant that takes us through to mid-October. The euro and pound remain shorts but with little potential in the short term. Sell wide strangles in the euro as the premiums are high and the market will likely be range bound over the next 6 weeks.

Grains

Grains remain choppy and susceptible to wet weather as we head into harvest season. If there is too much rain from these storms it will devastate the harvest. There is some serious flooding potential out there and it is still early September. This market sector is no longer trending but is still volatile and likely to breakout to the upside in the near term. Long strangles and bull call spreads are recommended despite the technical picture.

Meats

Cattle is down trending and is dependent on a grain rally to force support. Hogs should see some continued downside after congesting near the bottom, as China’s lifting of German pork comes after a two year negotiation. Meats are still heading south.

**Chart courtesy of Gecko Software’s TracknTrade

Metals

Metals are looking awfully ugly during this currency reversal and will continue to see selling pressure as the dollar sets fresh highs. Target 740 on gold and 11 on silver for support and a buying signal. Copper is ugly and weakening demand is going to kill this market that has ridden a high for way too long.

Softs

Cocoa is seeing support from strong demand at the ports, but this market is unlikely to see fresh highs. In fact, puts are the play here with a move to 2000 by year’s end. Coffee supplies are strong but the long term merits of this bull market remain intact and should be traded on dips with long term bull call spreads. Cotton is getting beaten up, but despite the ugly technicals this market remains a value buy. Straight calls remain overpriced so look at bull call spreads or straight futures. OJ is getting a pop from the hurricane activity but remains independently strong and a good buy on dips with straight calls. Sugar is experiencing selling pressure amid a falling corn market and rising supplies, but should see price support in this area in the short term. This market lacks a motivation to breakout and remains a short strangle opportunity on bounces in the near term.

Posted in Categories: Commodities, Contributor, Eurozone, External Research, USA.

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