Over the weekend the EU and IMF agree to a trillion dollar bailout for Greece. The stock market is screaming higher as I write this report and the S&P is showing what could be the largest pre-open gap higher in its history. This short squeeze is one heck of an opportunity to get short this market but the world better pay attention to the real underlying technical action. There are two critical events unfolding - volatility expansion and the risk of a spike bottom. Simply put if this rally holds then this constitutes a spike lower and quick recovery, a volatile expansion and likely contraction - basically a blip on the screen! I just don't see it happening that way. To me the market wipes this rally out and tests and breaks the lows. I suspect that the volatility expansion continues and there will be major market fallout ahead.

Energies

Oil prices collapsed as the stock market plunged and the dollar surged. The Gulf spill is far from over but the capping of the spill is comparable to reaching the apex of the problem and has helped a sell-the-news reaction. Today's price surge appears to be temporary and I do not expect the highs to get tested on this bounce. Natural gas remains a long term buy.

Financials

In my opinion those that got punched in the gut with last week's stock market collapse just received a gift this morning to get out at drastically improved prices. While it is possible the high and low has been set and a congestion period could develop, I just do not see that as the likely event. The likely event is a test and break of the lows. The bond market traded inverse but is holding most of those gains, thus indicating a continued flight to quality and bearish stock market outlook. Bond highs are also likely to be tested and broken.

I would like nothing more than to take this forecast and put it in the books as a great call, but 86 was not hit and anyone who is a trader knows close doesn't mean a thing. It could be some time before 86 is reached - heck I might be writing this for the rest of the year without my target being hit, but I see a likely collapse in the euro still unfolding and a bottom yet to be hit there. The dollar still has bullish components that suggest more upside sooner rather than later. Keep in mind currency trends happen over years, not days or weeks. The dollar zoomed 5% higher in a matter of weeks and that is unusual for a currency. It is quite reasonable for the market to retrace much of that move before heading higher once again. What is critical here is that volatility has returned to the markets. The euro remains a sell along with Aussie dollar, Canadian dollar and British pound. The Japanese yen exploded with upside volatility and showed why it's called the wild wild west of currencies. The yen will track the dollar's move and therefore I believe the highs set last week will ultimately be penetrated. The current dip is a buying opportunity but the surge last week makes the volatility premium in options a bit too high for my tastes.

Grains

Grains were fairly benign compared to other markets last week as the big moves and volatility appeared to leave this sector alone. Do not be surprised to see a lagging volatility occur in this sector and therefore long strangles are recommended in beans and corn. I remain bearish corn and beans and recommend value buying wheat anywhere between 4.50 and 5.00.

Meats

Cattle continues to edge higher and I expect a strong decline within the next two months. I recommend put buying at these levels. Hogs appeared to top in a congestive pattern the past few weeks but this congestion is not overwhelmingly bearish. The bear turn is not confirmed but rather the momentum of the recent price surge has come back to the mid-range of the uptrending channel. While this could be a top I am not convinced and would avoid getting short here.

Metals

Gold proved it can rally regardless of the U.S. dollar when the world is in panic. The stock market's plunge and EU panic created a significant flight to quality in gold. I suspect that silver's move last week is more in line with what should have occurred in gold and gold will now need to play catch-up with silver's decline when the stock market panic subsides. Copper remains a strong sell.

Softs

Coffee continues to be a strong buy. Cocoa has topped and I expect 2700 will be tested shortly. Cotton is a buy on dips. OJ is a sell without enough downside potential to warrant a trade. Sugar is a strong buy with straight calls. Lumber remains a cycle play to 350, but at these levels is not worth trading.

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.