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The Weekend Commodities Review – Memorial Day Edition

By Head Analyst James Mound

May 28th, 2004

Energies Wednesday’s inventory stocks report was the catalyst for a strong technical reversal in energies this week. While the DOE data suggested a draw (decline) in stocks, the more significant API report suggested quite the opposite and forced the market to begin the decline ahead of the upcoming OPEC meeting. The meeting should offer some volatility as the Saudis are batting heads with the rest of the world on raising oil supplies to cut prices down dramatically. The meeting could mark the end of the bull run in energies, although two main factors still may keep the bulls in the mix. First, you cannot ignore the relevance of a geopolitical premium in the market as the US must pull out of Iraq and terror alerts are being raised for the summer. Second, the difficulties in supplying enough unleaded may cause the whole energy complex to stay at a premium until supply meets demand there. Overall, the market continues to beg for the buying of puts and an avoidance of futures given the potential for increased volatility and geopolitical events allowing for a counter trend in the market.

Financials Strength in stocks came this week as the market touches up against trend line resistance heading into the weekend. Look to sell a possible Tuesday morning rally attempt as the market is poised for another leg down through the middle part of June. Bonds continued to stretch the upper range as terror fears, high oil prices and economic reports force a battle of the minds as to when the Fed will make its move. Look to sell into any further buying in the bond arena. The dollar break heavy on Thursday and looks so bearish one must question whether it could possibly follow through on its current technical pattern. I expect some buying to come in by Wednesday offering a better selling opportunity. The market just does not have the fundamental backing to suggest a free fall at this point (it should be a choppy decline). The Canadian is a strong buy.

Grains Beans continued to give selling pressure to the grain complex, as bean crush data and higher than anticipated plantings gave sellers everything they needed to get limit down on Thursday. Corn and wheat are finding relative support, but should fail here shortly. Beans will be the place to be, however, as $7.50 prices are right around the corner.

Meats Cattle spiked higher and removed technical bearishness from the market. Hogs continue to offer a bridge-top resistance and should see some selling if we get an initial two point down move from today’s closing prices. Overall, meats remain a sell, but are being very cooperative (patience is necessary).

Metals Gold prices spiked to nearly $400 as the dollar decline sent some shockwaves across the markets. Look for gold to take off if the dollar free falls, but the gut says this will not happen and gold will be choppy over the coming weeks. A 410 target is not unlikely. Silver is getting some selling pressure on bounces, which is something we did not see on the first run, so watch out. Copper is truly running back up the highs, and until a real bear turn is seen this market should be bought or avoided.

Softs A massive coffee rally ensued this week on a lack of fundamental news. Large spec buying and fund interest caught floor traders and roasters off guard. This could have some legs, but expect some producer selling to come in if no frost news supports this week’s run. Take a look at 1993/1994 and you may want to avoid any real exposure betting against a further run. Cocoa is moving higher as expected, as Ivory Coast politics continue to control market action. Expect a test of the 1550-1600 area shortly. Cotton got some bad news on its crop data, but looks to be a confused market. Avoid cotton and OJ as these markets lack good signals. Sugar is still bullish, but is coming up on some resistance between 700-720, so be weary.

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