jmound

Energies Oil prices quickly retraced and are fast approaching the 2011 lows set earlier this month. Where the global economic outlook goes so goes oil prices. Significant downside should be anticipated on a break below the August 9th lows. Rbob and heating oil should follow suit, but expect natural gas to begin to trade opposite as that spread between crude and natty tightens. Financials The stock market tested, but failed to close above, the critical 1199 mark on the S&P I had discussed last week. Concerns over European stability continue to plague the markets which are seemingly fighting the reality that the world is in a recession. Friday offered a critical indicator as to the market’s psychology and momentum as it destroyed a decent rally attempt by the close. On a technical level there is little to suggest anything but a retest of the 1077 lows on the Sept. S&P set back on the 9th. Bonds remain bullish during this stock market mayhem, but I would look to spread 1 short mini S&P500 against 1 short 30yr T-Bond to play a lack of upside in bonds versus the downside exposure in stocks. The dollar remains a buy on dips as the congestion that is playing out offers a bunch of misleading short term signals. The long term outlook continues to be bullish, pressuring the euro, pound, Canadian and Aussie dollars. The yen is a buy on dips as well, but there should be a congestion period for a brief time as the market fights against the intervention area from just two and a half weeks ago. I continue to standby my forecast that: The Japanese Yen futures will hit 140 before it hits 80 or I will quit writing the Weekend Commodities Review...forever. Grains Grains should experience serious pressure as slow exports and a weakening global economic outlook change the demand side of the equation in this sector. Look for corn and beans to get beaten down with volatility to the downside while wheat remains a spread buy against either. Rice remains a sell with puts. Meats Cattle turned bearish in a hurry last week and I expect significant downside through much of the remaining part of 2011, making this a bear market to jump on early. Hogs turned south once again and broke to fresh near term lows only to recover somewhat on Friday. Look for a fresh low closing price before entering into a short, which is as simple as a close below Friday’s low. Past performance is not indicative of future results. Charts courtesy of Gecko Software's TracknTrade Metals Gold and silver continue to scorch higher on a flight to quality play. This bubble is just getting bigger and bigger as the stock market tumbles and the euro falls. The problem is gold is priced globally in U.S. dollars which means if the euro is set to take a big hit then there will be a bigger gold bubble forming for the rest of the world than the one we see here in the U.S. For example, if gold is at $1850/oz and the euro drops 10% then those holding euros will see gold trading closer to something like $2,035/oz. Now let’s say gold rallies to $2,500 and the euro drops 30%, then those holding euros will see gold trading something closer to $3,250 – now we are talking one serious bubble. Silver, similar to gold, would experience currency-related pressure as the bubble gets bigger amid U.S. dollar strength. However, at what point does the inflated price of gold get ignored during a global panic and stock market meltdown? This will be the question that lies ahead. Copper remains a bear market amid a global demand slowdown. The current congestion pattern is likely to break this week. Softs In typical orange juice fashion the market went from freefall to v-shaped recovery all in about two weeks. The market is unlikely to maintain support and should be shorted on this bounce with straight puts. Coffee has rallied substantially on supply concerns and is fast approaching a critical resistance area, likely holding below 280. Cocoa remains a technical buy with a double stop reversal below the August 11th low. Cotton might congest with the current levels being the high of that anticipated range. That could offer a swing trade short here with stops about 400 points off Friday’s high and a target near 98. Sugar is a sell with straight puts. _____________ James Mound Disclaimer: There is risk of loss in all commodities trading. Losses can exceed your account size and/or margin requirements. Commodities trading can be extremely risky and is not for everyone. Some option strategies have unlimited risk. Educate yourself on the risks and rewards of such investing prior to trading. Past Performance is not indicative of future results. Information provided is compiled by sources believed to be reliable. JMTG or its principals assume no responsibility for any errors or omissions as the information may not be complete or events may have been cancelled or rescheduled. Options do not necessarily move in lock step with the underlying futures movement. Any copy, reprint, broadcast or distribution of this report of any kind is prohibited without the express written consent of James Mound Trading Group LLC.

Energies A violent near term bottom was set in oil and rbob on Tuesday, following an FOMC statement that had the markets whipsawing into a rally. The bad news is out? Hardly, but the reality is the market needed a dead cat bounce after crude oil’s 25% freefall in just over two weeks, and that’s exactly what happened during a four day 15% rally. Those chasing this rally will likely experience a hard reality this week as the oil market turns south to retest the Tuesday lows. The volatility presents a unique opportunity to play short condors. Financials The stock market had what some might view as a capitulation event (mass exodus thereby removing all the sellers) on Tuesday, rebounding dramatically following a horrendous Fed statement. This was not capitulation in my book as there are plenty of potential sellers left here. This is wave number 1 of possibly 3 waves down. The current technicals are indicating a Mound Ladle Formation developing which means a move to 1260 is possible before a violent retest of the lows. A close above 1199 on the S&P indicates a likely move to 1260, otherwise I remain bearish and expect continued pressure and volatility in this sector. The Fed’s announcement that rates will remain unchanged through to 2013 should not be a surprise and I suspect it is the tip of the iceberg of what is to come in the way of monetary policy shocks that illustrate just how bad things are getting. One interesting side effect of the announcement is the possibility that loans will be more accessible as investors seek out opportunities to acquire debt since they know the intermediate term prospects are not there for rising rates. This could create spending and help out the situation near term, but it will be difficult to see this impact the market for several months. Bonds, on the other hand, have limited upside and I would consider there to be equal-weighted risk on the buy and sell side. Volatility and choppy trade should remain, but for those with high risk tolerance a short strangle is worth a look. The dollar is choppy but remains bullish and I suspect this week will offer a strong rally as the euro currency experiences some pressure while Asian currencies chop. The Canadian and Australian dollars remain strong sells. The Aussie crumbled nearly 10% off the highs in a matter of days, showing the potential collapse that awaits this market. The Swiss Franc had one of the most impressive currency moves I have ever seen, as an FOMC play sparked an 8% rally in a day but was met with even more impressive selling as a clear top was put in. This market could see some impressive liquidation in the coming days. The Japanese yen performed as anticipated, erasing the intervention selloff in a matter of days. Following recent history the likelihood is for a chop around this 130 price range before heading higher. Expect a range between roughly 127-132 but don’t let the choppy trade scare you out of the long as I remain confident in my forecast that: The Japanese Yen futures will hit 140 before it hits 80 or I will quit writing the Weekend Commodities Review...forever. Past performance is not indicative of future results. Charts courtesy of Gecko Software's TracknTrade Grains This past week’s WASDE and crop production reports led to an extremely volatile and whipsaw Tuesday, but a reality is likely to soon set in for this sector. Oil prices have topped, already breaking 35% from the highs in just over 3 months. This affects ethanol demand which thrives when price extremes exist in oil but crumbles when oil prices retrace. Overall the commodity markets are susceptible to declining global demand, with grains seemingly lagging this outlook and sustaining prices amid a shift in demand outlook. Sell corn and beans while using long wheat as a spread against either (1 to 1). Rice is worthy of a put play here. Meats Cattle is fast approaching topside resistance on the Dec contract, and I anticipate strong selling to come in early this week. Put plays are recommended. Delivery hogs for August have continued to scorch higher, but back months are not seeing the same support. December hogs broke key trendline support but rebounded dramatically late in the week, and I recommend waiting for a fresh low on the December to reestablish a short. In case you missed the final oinks from the pit, pork bellies can now rest in peace as the CME put that futures market to bed permanently, begging the question as to what market is next to walk the plank? Metals During the panic of the past couple of weeks the flight to quality in gold has been strong, but the increased volatility prompted the CME to raise margins once again. The margin increase and a rush of profit taking coincided with a bounce in the stock market to bring a bit of selling to end the week. Volatility premium is thru the roof, but naked option selling is too risky a proposition in these markets at the moment, so look to sell an ITM call spread to pay for two OTM bear put spreads on an even money skewed option play to position for a volatile downside move. Copper remains a strong cyclical sell with straight puts. Softs Orange juice is in a freefall, collapsing on strong supplies and weakening demand with no crop-destroying hurricane in sight. More downside is expected. Coffee is chopping around while quietly establishing fresh lows every few weeks. I recommend puts here with increased downside momentum expected shortly. Cocoa broke key support at 2868 but recovered quickly late last week. I believe there is a high likelihood of a crash in this market in the next few weeks, but on a purely technical level the market is a near term buy with a double stop reversal below last week’s low. Cotton remains a sell on bounces, along with sugar. ---------------- James Mound *Disclaimer: There is risk of loss in all commodities trading. Losses can exceed your account size and/or margin requirements. Commodities trading can be extremely risky and is not for everyone. Some option strategies have unlimited risk. Educate yourself on the risks and rewards of such investing prior to trading. Past Performance is not indicative of future results. Information provided is compiled by sources believed to be reliable. JMTG or its principals assume no responsibility for any errors or omissions as the information may not be complete or events may have been cancelled or rescheduled. Options do not necessarily move in lock step with the underlying futures movement. Any copy, reprint, broadcast or distribution of this report of any kind is prohibited without the express written consent of James Mound Trading Group LLC.