Energies
The energy sector continues to fly to historic highs as disruptions in Mexican and U.S. oil supplies helped to create a shocker of an inventory report. The market mentality is clearly along the lines of how high can we run this thing, which almost always ends in an epic reversal with significant downside volatility. To me it is not if but when, and when in terms of days or weeks not months or years. Natural has developed a strong bull formation after congesting near a recent breakout high. This market is deserving of some pre-hurricane seasonal buying, but it appears this is more of a ride along with the sector that is about to take a severe correction straight in the jaw.

Financials
The S&P continued to chop, showing technical buying despite bearish news from Merrill. This market is not bullish despite a strong daily chart. The longer term view shows significant down trending left, but a choppy market in the near term. This should also cause some choppiness in bonds which tested the lower end of its recent range in an effort to form a bit of a technical top. This market still appears range bound to me and should be bought on further dips to play a bounce back to 119 or higher.

The dollar was all over the map this week and appeared to be heeding the words of the G7 meeting last weekend with a Sunday night plunge in the euro. However, the rebound and ensuing rally pushed the euro to fresh all time highs. Thursday's inside day setup a strong selloff on Friday. If a market sets a fresh all time high and has no follow through there might be a real turn coming very shortly. The yen has begun to top but remains a currency to avoid. The Canadian dollar is in a congestion pattern with a likely break to fresh lows coming, but I recommend waiting for technical confirmation before jumping in.



Grains
Three very different chart patterns are emerging out of the grains sector as beans congest in a wide pennant while wheat is ugly and corn is riding one serious bull trend line. The bottom line is that wheat's failure will likely end this bull run throughout the sector IF we have some good weather through the end of May. The logic is that wheat supported this run up on several levels: global export restrictions, supply shortages and planting concerns. Now we get an end to wheat extremes and it brings a wave of relief to bean and corn prices. Rice is standing on its own with low volume limit action like nothing this market has ever seen before. I called for a bull market but this is just hysteria now.

Meats
Slaughter rates in the U.S. & Canada are strong which will net out to support prices in the future, however the lag affect on supply will not show this for some time, leaving the market open to strong selling pressure in coming weeks and months.

Hogs have run up to test the upper side of a wide long term range, offering a potential short as this market is not breaking out to anywhere any time soon.

Metals
Gold's inability to run back to highs despite new highs in oil and the euro suggests the top is in for the metals sector. This overbought market has not seen its true retracement yet and short plays are recommended in both gold and silver. Copper is catching some support on strikes in Chile, reminiscent of the original strike that lasted far longer anyone had previously thought possible. If the strike ends quickly then expect a sharp selloff in copper, making puts a worthwhile play given the potential for some serious volatility.

Softs
Coffee took the recent volatility and turned into a strong run to fresh highs before seeing some selling pressure come in. The market remains bullish. Cocoa continued to surge higher on significant short covering, only to get hammered on Friday's U.S. dollar rally. Cocoa could easily see a secondary top form early next week and puts are highly recommended. Cotton has been all over the map and is good for some long term bull call spreads but otherwise avoidable. OJ is on the rise after falling to almost exactly the 50% level from the highs. Different from a Fibonacci 50% retracement, OJ topped at 210 and has pulled all the way back to 105 only to find strong support on two occasions. The second support came in higher around 110 and suggests a real bottoming formation ahead of critical hurricane season. Go long with puts as protection. Sugar is choppy and not holding up during a major oil run, so look to play puts on a rally day as I suspect little bull runs will be sold into heavily.

James Mound is the head analyst for www.MoundReport.com, and author of the commodity book 7 Secrets. For a free email subscription to James Mound's Weekend Commodities Review and Trade of the Month, click here.