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The
Mound Report
by: James Mound
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Energies
A very bearish inventory report,
the second bear surprise in as
many weeks, did little to shock
the market downward. Market
participants are in the 'how
high can it go' mindset and they
are leading the market to one of
the largest two week rallies in
history. Moreover, the market
has no technical resistance and
little standing in its way to
fresh highs on a fundamental
level - especially if they are
ignoring inventory. While I
would typically look for a
topping event (a fundamentally
bullish event that brings about
a spike high top on the
psychological premise that all
the good news that could be
priced in already is - the its
as good as it gets syndrome)
this market appears so
overbought and in such market
hysteria that any strong profit
taking could start a domino
affect. December deep out of the
money puts are the place to be.
Don't try to be a market timer
here, but rather a premium
player. By going out in time you
will likely get a nice
volatility pop in the options a
strong price correction.
Financials
Stocks took a beating last week
as a the false breakout of a
bull pennant setup a reversal
and some momentum that is likely
to take the S&P to the 1300 area
in short order. Bonds held as
anticipated as the stock market
created support via its inverse
relationship that bonds needed
in order to remain relatively
channeled ahead of future Fed
meetings. The dollar is
exhibiting strong support and I
expect continued upside in
coming weeks as pressure on the
euro and pound remain
significant. The Canadian dollar
is caught between rising
unemployment and strong
commodity exports. Look for the
latter to give way and a selloff
to ensue. Wait for a break below
9675 for confirmation.
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Grains
Concerns over weather hitting some key
growing areas helped to support wheat early
in the week, but the supply and demand
report broke the market below critical
support just under $8. Corn also gave
indications of a reversal after a topping
event (see energies above) may have occurred
on Friday. Monday's crop progress is going
to be huge! Beans remain exposed on the
supply side but will likely get some
beneficial plantings from the wet weather in
the corn belt. The sector appears to be
vacillating back and forth amongst the
various big three, toggling for position
ahead of the key growing season. However
this seems like a setup for a market top
right now and a strong selloff in coming
weeks. A critical couple of days lay ahead
for rice as a break below 2150 sets up a
market failure.
Meats
Cattle caught some strong support this week
on bullish fundamentals, but I expect a
price correction in coming weeks. Hogs are
also setup for a solid 6-8% retracement. The
meats look ready to breakdown and puts can
be bought on the cheap.
Metals
Gold and silver continue to see far stronger
price pressure on days of dollar strength
than it does support on weak dollar days.
This is a sentiment trend shift that shows
on a short and intermediate price chart and
sets up a quick move in gold to 800. Silver
should follow suit. Copper is likely to see
pressure as an ugly strike in Chile comes to
a close. Platinum remains a sell despite
some continued mining issues. A strike in
Peru's mining area could become a more
prevalent issue for metals then it seems
now. Keep a close eye on this moving
forward.
Softs
Coffee is choppy as revised Brazilian crop
forecasts are way under private outlooks and
the dollar gains on the Real. The market
remains a strong buy with technical
confirmation on a break above 140. Cocoa is
showing an exhaustion pattern that may setup
a top here, but it is cocoa so pick up some
cheap puts as opposed to exposed futures.
Cotton remains a buy at these levels and has
developed a nice rounding bottom formation.
Despite some beneficial rains in Texas to
facilitate planting, this market is far too
under-planted to pull out on top this year.
Look for a strong move higher to keep
momentum going. OJ has been virtually
untradable lately which is putting
volatility premium and spec demand into the
option market. A bull call spread or ratio
call spread looks good to me. Sugar got a
price pop this past week as energies shot
up, but don't expect too much follow
through.
Disclaimer: There is risk of loss in all
commodities trading. Commissions and fees
vary per individual and therefore are not
included in profit, cost and risk scenarios.
Please consult a James Mound Trading Group
Broker before you trade for the first time.
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. James Mound
Trading Group, or anyone associated with
JMTG or moundreport.com, do not guarantee
profits or pre-determined loss points, and
are not held monetarily responsible for the
trading losses of others (clients or
otherwise). Past results are by no means
indicative of potential future returns.
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