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January 7, 2014 Volume 8, Issue 1


Feature Article

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Metals - Gold

Nick DeGeorge

In the early morning trade, February gold is down around $10 and currently trading at $1227.4 a troy ounce. Yesterday, gold found early buying and reached a new monthly high due to weak economic data from China and the US, but a very big sell order was rumored and caused it to sell off over $30 within minutes. However, the gold did find its way back up to end yesterday's trading session slightly down. Also, hedge funds are raising their gold wagers to a six-week high as the net-long position in gold jumped 19% to 34,104 futures and options in the week ended Dec. 31. However, Goldman Sachs is still predicting more declines after gold dropped the most in three decades last year.

As always, let’s look at the daily February gold chart to get support and resistance levels. For the gold bears, if February breaks below the $1200.0 an ounce handle, then it will test the contract low of $1181.4 made back on Dec. 31st. If this level is breached, then $1,000 gold prices are not out of the question and in fact, that is what Goldman Sachs are predicting that gold will hit this year. For the gold bulls, if February gold could break the December high of $1267.5, then gold can rally all the way up to its 200-day moving average which currently rest at $1344.0 a troy ounce. I have highlighted all technical levels below on my February daily gold chart.

If you'd like to learn more about futures trading or the Metals market specifically, please contact RJO Futures Senior Trading Broker Nick DeGeorge at 312-373-5316 or ndegeorge@rjofutures.com.

Feb '14 Gold Daily Chart

Source: RJO Vantage


Metals - Silver

As we move into the new year we get a fresh start looking at the silver market. The year is fresh, but there are still tailing effects from the past few years. Although 2012 didn’t see silver as high as the 2011 highs, every time this market hit the 2600 area it held the support and would rally to the 30’s, making a stronger case for the bull in this market. However, as we came into 2013 the market opened at a nice 3000 and quickly sold off over the next 6 months to a low of 18185. This market hasn’t seen this low since 2010. Both the gold and silver markets came into the spotlight with the financial crisis hitting near the end of 2008. Both of these markets rallied once ‘news’ broke of the crisis and they became a flight to safety just in case the entire market collapsed. As we’re looking at the world in 2013 this didn’t happen. Although the world isn’t running as good as some folks would like it, looking at manufacturing and employment numbers throughout the world it has gotten better than it was. There is always room for improvement but the situation is getting better.

Where does this leave the metals? There are still industrial demands for the metals markets and there are disputes about the levels being mined and what’s available to use for production, but as the fear of inflation is slowly subsiding and the economic situation is improving, these metals are starting to lose their shine, so to say. 2013 was an extremely traumatic year for silver and it was the worst performance in over 30 years, since the famous Hunt Brothers scandal. I’m sure there are a number of commentators that have a name for the most recent price drop in silver, but we have to deal with the last trade of the market, which puts it hovering around 2000. We can just call this the great fall from 2011.

Considering how bearish on the charts I’ve been and the other numerous commentators telling the great demise of the silver and gold market it’s easy to want to be the contrarian in this situation. In that regard, the technicals of this market put it at a level where if it’s going to hold, it has to hold here. Old resistance, new support from 2010 is the 1950 level this market is resting on. It needs to hold onto these levels to have any technical hope for a rally this year. Continuing on the technicals starting the Fibonacci retracement from the low of 2003 to the high of 2011, the 61.8% retracement falls at 2144. This market has closed below this for the past two months, so yet again if it can’t break above that level, you can look for lower prices. There has been an upward trend line in place since the 2011 high which could see this market rally to 23700, but again if this market can’t break above this level you could see lower prices.

We’re at a very interesting time. Janet Yellen was confirmed to the Fed yesterday and she’s getting the reins from Chairman Bernanke in a slowly improving economy. Everyone is wondering how she will handle the quantitative easing that’s been in place the last few years. We can expect that the employment numbers will be closely followed by her and the Fed as this is one of her biggest indicators of the health of the economy. At the last meeting they decided to only purchase $75 billion of bond purchases from the $85 billion that’s been commonplace for the past few years. Will they drop it to $65 billion next month? When will they be completely done? Assuming everything lines up and you see an improving picture you could see lower prices in the coming months for the silver market. However, if things continue to worsen you could see these metals regain their shine. There are many different sized silver futures contracts to trade and it’s possible to get involved with a long straddle in the options markets that looks to take advantage of a move in either the up or down direction. As usual keep your risk management close and let me know how I can help.

If you'd like to learn more about futures trading or the silver market specifically, please contact RJO Futures Senior Trading Broker Mike Rataj at 800-453-4494 or mrataj@rjofutures.com.

Silver 2001 – 2014 Monthly

Source: DTN Prophet X

Silver Monthly 1971-2014

Source: RJO Vantage


Energies - Crude Oil


The oil market has been falling apart over the last week of trading, falling over $7 from December 27, 2013 to January 6, 2014. The bears grabbed a hold of this market and have barely let go until maybe today. Interesting to note, that we have seen several weeks of draws in the stockpiles with a possibility of another one this week, yet in the big picture I believe the market still appears well supplied. Demand continues to be somewhat questionable, China data is mixed, Europe continues to have its problems and here in the US economic data goes back and forth. Price action in the oil market this week so far has suggested to me that the bulls might get a small bounce up. That’s right, I think oil is in store for a small bounce higher before it moves back down. I think the next stop for oil could be around $96.25 a barrel basis the March which is right round the 200-day moving average. Of course weekly inventory numbers, API due out later today and DOE numbers due out tomorrow morning, could influence price action as well.

On the technical side, short-term indicators appear to show the market in an oversold situation. So far today’s price action is showing an inside day. For aggressive traders this could be the time to look for a short-term position to the upside. For the bears, I would look to start establishing short positions around the $96 level basis the March oil, but make sure you protect yourself if there is a push higher. If you prefer to trade with options, call me, as I am currently recommending a bear put option ratio spread using March options.

If you'd like to learn more about futures trading or the Energies market specifically, please contact RJO Futures Senior Trading Broker Mike Sabo at 312-373-5248 or msabo@rjofutures.com.

Mar '14 Crude Oil Daily Chart

Source: RJO Vantage


Softs - Cotton

Erik Tatje

After a strong rally off the 11/22/2013 low, the cotton market has failed on multiple tests of the 8500 level. Looking back at previous price action, this level represents where the market failed from earlier in October of last year leading to substantial sell-off in cotton toward the end of last year. The large upper shadows of the most recent candlesticks show that the market has failed to close above the 8500 level on multiple occasions. Additionally, the RSI is currently showing a negative reversal signal. This occurs when the RSI makes a higher peak that corresponds with a relatively lower peak in price. Given the market's inability to close above the 8500 level, cotton could be setting up for a valid sell signal from these levels with well-defined risk parameters.

If you'd like to learn more about futures trading or the cotton market specifically, please contact me directly at 800-826-1120 or etatje@rjofutures.com.

Mar ’14 Cotton Daily Chart

Source: RJO Vantage


Softs - Cocoa

Is the bull move over? I don’t think so personally. The fundamentals are still bullish but sellers have been active which has pressured the March contract as we start the New Year. Weather has been good for crops in West Africa but there are still supply concerns. Ivory Coast port arrivals showed a drop compared to this time last year. Although year-end stocks were down around 42% from 2012, traders are wondering if there is any upside left or if this is all priced into the market. Over the next month we will keep an eye on arrivals to see if we can get another lift in prices. Technically, we are trying to find a new range looking at the chart below. Prices broke below the 9-day and 20-day moving averages which is short-term bearish. Look for resistance at 2697 as we struggle to close above 2700. If we can break above 2700, 2720 will come back in the picture as key resistance.

If you'd like to learn more about futures trading, please contact RJO Futures Senior Trading Broker Peter Mooses at 800-826-4124 or pmooses@rjofutures.com.

Mar '14 Cocoa ICCH14 Daily Chart w/ Moving Averages

Source: RJO Vantage


Softs - Coffee

Adam Tuiaana

In the futures markets it’s tough to call tops and bottoms to markets. However, we’ve been monitoring the 12100 level in the March coffee contract for quite some time. It looks as if the break above the October 2013 highs, coupled with waning volume, is producing in the near-term a short covering rally. However, one cannot deny that a downtrend line that has been in place since January of 2012 is in fact being challenged. We’ve heard reports of a potential 2014/15 global deficit, once the overwhelming near-term supplies have been depleted….but that will likely take a little while. Long term, look for a rally to 124 and pull back correction to 118 before a bounce back up to continue the reversal to the upside.

If you'd like to learn more about futures trading or the coffee market specifically, please contact RJO Futures Senior Trading Broker Adam Tuiaana at 800-453-4494 or atuiaana@rjofutures.com.

Mar '14 Coffee Daily Chart

Source: RJO Vantage


Agriculture - Grain

Stephen Davis

It is a frigid Tuesday and the trade is looking for a modest turnaround on Monday’s grain rally as the market holds in a back and forth trade ahead of Friday’s USDA crop report. It is this January crop report that will help in determining price trends into spring. However, with the US December 1st corn stocks being some 2.7 billion bushels more than last year and South America to produce a record large soybean crop, it will be difficult for the grain markets to sustain a rally.

That being said, the Chinese continue to buy US soybean with an unexpectedly large 350 metric ton US old crop soy sale announced overnight and this sparked a little rally when we re-opened this morning at 8:30am. Mar '14 soybeans are only up 3 cents off this announcement so the market is responding calmly. The trade may instead be focusing on declining China’s soy crush margins and a big loss in Dalian soybeans. The managed funds are still carrying a large soybean long position despite declining under the 50-day moving average. The managed fund position in corn is still very short ahead of the index fund rebalancing that starts tomorrow. This should bring approximately 90k of buying being distributed in the corn market. Be aware that this index fund rebalancing does not alter the long range fundamentals which are negative in corn.

The agriculture markets are marking time ahead of Friday’s crop report. This can be the biggest risk report of 2014. Low agriculture volume yesterday suggests many of the traders are on the sidelines awaiting Friday’s updates. The big Peoples Republic of China soybean sales today should limit further losses in soybeans in the short-term.

If you'd like to learn more about futures trading or the agricultural market specifically, please contact RJO Futures Senior Trading Broker Stephen Davis at 800-367-7181 or sdavis@rjofutures.com.

Soybean Meal Weekly Continuation Chart

Source: RJO Futures PRO

Soybeans Weekly Continuation Chart

Source: RJO Futures PRO


Agriculture - Livestock

Jeff Gilfillan

Live cattle futures have bullish momentum on their side as momentum funds have increased their positions. As of Dec 31st, trend-following funds traders were net long 89,021 contracts. Record net long for this sect is 116,518. Cash markets have supported higher futures’ prices as packers need to fill orders in a tight supply environment. The supply side will not change anytime soon but lower seasonal demand and unexpected deep freeze may encourage less slaughter and lower feed prices may encourage feeders to build weights.

Prices across the board need to remain high to rebuild front-end supply and packers need to adjust their capacity and efficiencies to reflect sporadic demand. Some profit taking into the January should be expected as an overall deflationary environment will limit momentum funds’ appetite for record net longs.

New Year’s resolutions generally don’t involve Big Macs and steaks and this Leonard’s getting larger so expect domestic beef demand to taper. This is a good time for producers to consider put options as hedges particularly in feeders.

Continue to follow RJOF research or contact us at 888-861-0382 for spec and hedge recommendations.

If you'd like to learn more about futures trading or the agricultural market specifically, please contact RJO Futures Senior Trading Broker Jeff Gilfillan at 888-861-0382 or jgilfillan@rjofutures.com.

Live Cattle LT Monthly Chart Combined

Source: GeckoSoftware.com


Interest Rates

Eli Tesfaye

The Treasury market, for now at least, seems to discount the idea that the US economy will recover in 2014 in a rapid rate as most of the crowd thinks. Since the start of the New Year futures have firmed up a bit. Additional support also comes from weaker than expected inflation numbers in the euro zone. Of course the Jan 10th employment situation number should give us a clue as to what happens this year.

The big news yesterday was of course the confirmation of Janet Yellen by senate (56-26) to head the Federal Reserve Bank. Dr. Yellen has a huge responsibility in our view of eventually unwinding the massive and still ongoing purchase of Treasury and mortgage bonds through the process called quantitative easing (QE). Bernanke and company implemented QE to keep long-term interest low and spur economic growth. The Fed has already begun slowing its asset purchases from 85 billion to 75 billion per month citing the resent improved economic outlook and lower unemployment situations.

The most important job Dr Yellen will need to accomplish, and we wish her a great deal of success, is exiting these programs and then shrink the balance sheet without rattling financial markets and hurting the economy. We think that at some point this year Dr. Yellen and company will halt the taper plans if the rate of economic growth does not show signs of improvement.

If you'd like to learn more about futures trading or the Interest Rates market specifically, please contact RJO Futures Commodities Broker Eli Tesfaye at 800-367-7290 or etesfaye@rjofutures.com.

Mar '14 30-Year Treasury Bond Daily Chart

Source: RJO Futures PRO


Equity Indexes

Greg Perlin

The S&P has lost 1.2% from Jan 2 through yesterday, the longest stretch of declines to start a year since 2005. The index climbed 30% last year, the most since 1997. Equities have been the place to be in 2013. Everyone is waiting on the Fed minutes tomorrow (Wednesday) and the jobs report on Friday that could be the drivers of further confidence.

Technical outlook for the March S&P futures remains bullish while still anticipating a blow off near 1870-1880. The drop off from last week cautions for corrective dips but trade should fight to hold 1811 to keep bull forces. A close under 1811 is the key to mark a near-term turnover and a correction phase to test 1789.75. A move above 1846.50 could spark strong rallies.

If you'd like to learn more about futures trading or the Equity Indexes market specifically, please contact RJO Futures Senior Commodities Broker Jeffrey Friedman at 800-826-4124 or jfriedman@rjofutures.com.

Mar '14 E-mini S&P 500 Daily Chart

Source: RJO Vantage


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