RJO Futures Website
January 21, 2014 Volume 8, Issue 2


Feature Article

Upcoming RJO Futures Webinars

Trading Currency Futures

Wed, Jan 22, 2014 at 7:00pm CST
Register now! Learning about foreign currency futures trading can add a broad range of new products to your trading routine. In this session we'll cover many of the critical elements that you'll need to know regarding currency futures (also known as FX Futures). FX Futures trade 24 hours a day, 5 ½ days a week. This is a very technical market that traders can potentially utilize to trade the markets outside of normal US stock market hours - with good volume and volatility. Depending on where you live and your work schedule, Forex Futures may be a good fit for your trading enterprise.

  • What makes FX a good market to trade?
  • Benefits of trading foreign currency
  • Typical trends within FX Futures
  • An FX Futures trading strategy


Metals - Gold

Nick DeGeorge

In the early morning trade, February gold is trading well off its overnight high of $1262.0 and currently trading at $1239.4 a troy ounce. After a back and forth battle between the bulls and bears last week, February gold finished out the week up a modest $5 an ounce. Gold is receiving some interest in buying due to the ongoing threat in supply disruptions in South Africa, and on Friday the gold ETF GLD saw its biggest inflow of buying in over 25 months. However, even with that said, gold has aggressively dropped roughly $25 an ounce from its overnight highs.

Let's take a look at the technical action analyzing a February gold chart. We can keep it very simple of the bulls and the bears. For the bulls, the overnight high is a clear spot to start buying gold and if it breaks this level it should find momentum buying all the way up to $1330.0-$1362.0 an ounce, which is between the 200-day moving average and the October high of $1362.3. For the gold bears, the key levels for gold to break are the psychological level of $1200.0 and then the contract low of $1181.4 set back on December 31st. I have highlighted all technical levels below.

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

Feb '14 Gold Daily Chart

Source: RJO Vantage


Metals - Silver

Although suffering a more than $10 drop in 2013, the last four weeks are showing some signs of optimism in the silver market. So far the yearly low is 18720 with a near-term high of 20670. This is a tight range but we're only one month into 2014. Another optimistic point for this market is the low of 18600 back in June. Although there was much weakness in December this market was able to hold that support and was unable to make a new low. The lows of 18600 and more recently 18720 are strong support for this market and a break of it would be a confirmation of a continued bear trend. On the upside, last week's high of 20670 holds weak resistance with the market needing to close above 23115 to test the bull market and a close above 25080 for a confirmation of the bull market.

It's still early in the year to discuss silver mine production for 2013, but early estimates have shown multiple companies reporting record production. Mine production has been steadily increasing at least 20 million ounces per year over the past decade and the expectation is for this trend to continue. Mine production in 2012 was at 787 million ounces with net government sales of 7.4 and old silver scrap of 253.9 to 1,048.3 total million ounces. Demand was strong with investors as the US Mint reported 42.6754 million ounces sold in 2013, up from 33.743 million in 2012.

With the Fed looking to dial back its bond purchases we could see this support hold and this market rally to old highs. If the economy continues to improve we could see more downward pressure on silver and a break of support to lower levels. Look at call or put spreads to get limited risk exposure in either direction.

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

Mar '14 Silver Weekly Chart

Source: RJO Futures PRO


Energies - Crude Oil


In the last eView dated January 7, 2014 I commented on the oil market possibly being in an oversold situation. On January 7th March oil hit a low of $93.52 and two sessions later on January 9th hit the most recent low of $91.47, since the low on the 9th oil today hit a most recent high of $95.45 – I think the market may still be in store to trade a touch higher, possibly up around the 200-day moving average which is coming in around the $96ish area. We have seen several consecutive weeks of draws in the stockpile of oil. Last week was a surprise, most traders were looking for a draw of about 750k barrels and the market saw a draw of 7.6 million barrels. These draws in stocks coupled with a technically oversold market have been very friendly to the bulls. BUT I think the time is coming soon where the bears will be back in the driver's seat. Demand continues to be questionable and seems almost like a rollercoaster ride with economic data all over the place here in the US as well as globally. DOE numbers will be delayed this week due to Monday's holiday when I think the market will take its cue from there.

On the technical side, short-term indicators appear to show the market quickly approaching an overbought situation. Today's price action is mixed and an outside day. For aggressive traders this could be the time to look for a short. For more conservative traders, I would look to start establishing short positions around the $95.25 to $96.00 area 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 Mike Sabo at 312-373-5248 or msabo@rjofutures.com.

Mar '14 Crude Oil Daily Chart

Source: RJO Vantage


Energies - Natural Gas

Bill Moore

We have interesting price action here this morning with February natural gas futures. Market trading rejected a gap downward in favor of bullish divergence. Last traded price on GNGG14 is 4422, up 2.3% on the day (10:14 CST). Traders hanging onto the idea of boosted world demand rallying prices in 2014 have to be happy with the trading activity we've seen in the past month. The weather forecast for the next 10 days shows temperatures well below seasonal averages, which should add support. Couple that with the 287 BCF draw from last Thursday's inventory number and we're looking at bullish fundamentals for the coming week. COT numbers showed non-commercial traders lightening up considerably on shorts as well.

Technically, this market is showing a mixed bag of signs. January 9th's twenty cent sell-off to 3996 was rejected despite market breaking key support below 4100. Momentum is pointing higher but we fell below the 20-day moving average, which is a bearish signal. Resistance on the charts is at 4578. Support is at 4.248 and 4090.

If you'd like to learn more about futures trading or the energies market specifically, please contact Bill Moore at 800-422-6610 or wmoore@rjofutures.com.

Feb '14 Natural Gas Daily Chart with RSI, MACD and Moving Averages

Source: RJO Vantage

Softs - Sugar

Joe Nikruto

This week's comments finds us reviewing a market trend that has been a friend to many traders. Those who have been short sugar with puts or outright futures have been enjoying an almost one-way ride down since the March sugar futures crossed below 19.00 back in October of last year. Looking at a long-term chart of sugar futures it is difficult to see where a bottom might be. There has been some 'econ 101' talk from commentators suggesting that prices may be nearing or even below cost of production and that this would provide a strong disincentive to producers. In fact, wire services have recently reported on the large number of mills being idle in Brazil ostensibly for lack of profitability. Recent changes in policy in Brazil have resulted in more gasoline being consumed in that country, putting pressure on demand for ethanol. Besides Brazil, other sources such as India and Thailand continue to add to already abundant supplies. The Hightower Group in their morning commentary today highlighted the fact that the 'non-commercial' or 'Large Speculator' category has only now moved into a net short position. This means that the 'commercial' trader or end user/ producer is now net long. This in and of itself doesn't mean that a trend change is at hand but makes it more likely that one could occur. With the wire services a veritable chorus of bearish views it is easy to get suspicious and look for places in the distance that might make for good turning points. In my opinion, at this stage, there is nothing technical or fundamental that might allow for March sugar futures to halt the downward trend, let alone mount a sustained rally. Time to start shopping for calls?

If you'd like to learn more about futures trading or the sugar market specifically, please contact Joe Nikruto at 800-453-4494 or jnikruto@rjofutures.com.

Mar '14 Sugar Daily Chart

Source: RJO Vantage


Softs - Cotton

Erik Tatje

After bottoming on 11/22/2013, the cotton market has rallied substantially and is fast approaching potential resistance around the 87.50-87.75 area. Trend followers have been able to catch a majority of the move as the 20-day moving average crossed above the 50-day in mid-December producing a "buy" signal. The market continues to make higher highs and higher lows, keeping trend followers in the market. Near-term momentum looks to carry prices up to at least the 87.50 level before encountering any significant technical resistance. A failure and corrective pullback from the previously mentioned resistance area would not be out of the question as momentum indicators are all pointing to an "overbought" market.

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

As trading resumes after the holiday weekend, March cocoa hit a high of 2720 and has come off fairly hard. We are currently trading near the lows of the day and below the 9-day moving average. The 2720 level continues to be a major resistance. Fourth quarter North American grindings came in lower than expected last week causing pressure on cocoa prices. Cocoa is also overbought, keeping prices in this range. Asian fourth quarter grindings came in higher than expected, helping the market early in the day. Output in West Africa appears to be slowing down, which could be concerning for the supply side of the equation. We'll focus again on supply and demand as the data seems to be moving towards favorable conditions for a price increase.

If you'd like to learn more about futures trading or the cocoa market specifically, please contact Peter Mooses at 800-826-4124 or pmooses@rjofutures.com.

Mar '14 Cocoa ICCH14 Daily Chart w/ Moving Averages

Source: RJO Vantage


Agriculture - Grain

Stephen Davis

There is much needed rain falling across the drier areas of South Argentina and the forecast of more to come has pressured the soybeans today and dragged corn lower as well. The volume of overnight trade has been better than recent sessions as the long positions liquidate them. A mostly lower trading session should continue today.

The rain falling across Southern Argentina has ended four weeks of steady dryness. Rainfall totals have ranged from .5 -2.00 inches with rains still falling as this is written. Another good chance of rain exists for Wednesday and Thursday which looks to produce another 1 to 2 inches of rain. Much cooler temperatures will follow this wetness as the extreme heat breaks on Thursday. These rains will push into Southern Brazil by Friday and linger through the weekend.

The extended weather forecast offers another chance of rain for Northern Argentina and Southern Brazil in the 11- to 15-day period with nearly ideal weather conditions to continue across much of Brazil. The soybean harvest is advancing and a record large soy crop is in the making. This is not a good start to a new trading week after a long 3-day weekend.

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

Mar '14 Soybeans Daily Chart

Source: RJO Futures PRO

Mar '14 Soybean Meal Daily Chart

Source: RJO Futures PRO


Agriculture - Livestock

Jeff Gilfillan

An unexpected surge in cash prices for live cattle propelled the futures market to contract and all-time highs. Boxed beef continues to hit new highs, trading up to 236.56 on Friday. Commitment of Traders' report as of Jan 14th showed non-commercial net longs up 12,631 at 134,577. This is not far from the record net long of 144,200 set in September 2010. Cattle futures continued to breakout another 400+ points since the COT as of date of 01/14.

Cash will continue to drive the futures market one way or another as the stiff premium cash to futures leaves weak spec shorts running for the exits and little incentive for packer hedging. Momentum may push Feb/April futures closer to cash (142-144), but the velocity of the move may be a sign this may be short-lived with 138-140 area as a sell-off target.

As mentioned last newsletter, feeders may consider some hedging via put options. Hightower research suggested purchasing April live cattle calls today. This product of RJOF research was consistently pushing Feb live cattle calls late 2013. See RJOF research for free client subscription auto emails.

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 Jeff Gilfillan at 888-861-0382 or jgilfillan@rjofutures.com.

Live Cattle LT Monthly Chart Combined

Source: GeckoSoftware.com


Interest Rates

Eli Tesfaye

Many traders who are new to the futures market probably never traded the Eurodollar. Eurodollar is the interest rate on the U.S. Dollar held at banks outside the U.S. I would like to point out several benefits of trading the Eurodollar. The daily average volume on the Eurodollar (traded at The CME Group) is larger than both gold and crude oil combined. It tends to be less volatile relative to other futures markets and it tends to trend very well. I especially like that you can trade all the way out to Dec 2017 and even further if you would like. The E-mini S&P contract has little to no volume / open interest past December 14. This morning, Dec 2017 Eurodollar is trading with volume of 36900 contracts and an open interest of 163618. One of the main reasons I recommend trading the Eurodollar is because of its good liquidity and low margins. For example, the initial margin to trade Dec 2014 Eurodollar futures is $313.50. The chart below is for Dec 2017 and its initial margin is $770.00. If you do spread trades, the margin is even smaller to participate. Give me a call or email me to discuss specific trading strategies.

Finally, I recommend trading this market on the short side because the Fed cannot keep interest rate at zero forever and a rise in rates results in a drop in Eurodollar. I will write more in the coming weeks. Please visit rjofutures.rjobrien.com under the research/trade recommendation tab, I have a recommendation for Dec 2014 and I'm looking to put out another trade recommendation for Dec 2017 for outright shorts and spread traders. See the chart below and let me know if you would like to discuss further.

If you'd like to learn more about futures trading or the interest rates market specifically, please contact Eli Tesfaye at 800-367-7290 or etesfaye@rjofutures.com.

Dec '17 Eurodollar Weekly Chart

Source: RJO Futures PRO



John Caruso

Correlation between the US Equity Markets and USD Index have been slowly drawing closer over the past several sessions. Perhaps we're experiencing a situation where the USD is recognizing stable growth within the United States as well as a tightening of the Federal Reserve's bond purchasing program. Both scenarios are bullish for the USD. The fact that the Federal Reserve is recognizing economic growth and a stabilizing labor market throughout the United States is in turn being reflected in the reduction of their QE program. The Feds concluded their December FOMC meeting with a $10 billion reduction of QE from $85B in asset purchases to $75B. Sources have revealed that another $10 Billion reduction is a likely scenario at the FOMC meeting concluding next Wednesday. The next strong area of resistance in the USD comes in at 81.75, but with the proper fundamentals, including strong data from the labor department, and an increasingly hawkish Federal Reserve Committee, higher ground is very likely.

If you'd like to learn more about futures trading or the currencies market specifically, please contact John Caruso at 312-373-5286 or jcaruso@rjofutures.com.

Mar '14 US Dollar Daily Chart

Source: RJO Vantage

Equity Indexes

Jeffrey Friedman

The economy was mostly positive this past week although there were some question marks. Housing wavered, manufacturing continued to improve, consumers spent more than expected, and core inflation is tame. Taking into account severe winter weather in December, the economy appears to be moderately healthy. Growth is somewhat positive and possibly moderately strong for the fourth quarter. The recovery likely can withstand the Fed continuing to taper at a slow pace.

Stock futures were mixed this past week. The Dow futures was up 0.1 percent; the S&P futures, down 0.2 percent; and the Nasdaq futures, up 0.5 percent.

For the year-to-date, major stock index futures are mixed as follows: the Dow, down 0.6 percent; the S&P 500, down 0.6 percent; and the Nasdaq, up 0.6 percent.

This week's focus is on housing—notably after a slightly soft housing starts report last week. Existing home sales will hit the wires and hard weather may play a role in the December data. The FHFA report this week may play a notable role in traders' views on confidence in the consumer sector.

Technical outlook for the March S&P futures remain in a long-term bull market. In the short-term, the S&P futures are in a sideways to uptrend, with most chart followers targeting 1847 as their target for resistance and then at 1872. The market must stay below 1747 if a stall is going to develop. A close under 1821 could give way to 1788. A close under 1788 could have the bears run this market down to 1755.

If you'd like to learn more about futures trading or the equity indices market specifically, please contact Jeffrey Friedman at 800-826-4124 or jfriedman@rjofutures.com.

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

Source: RJO Futures PRO

E-mini S&P 500 Weekly Continuation Chart

Source: RJO Futures PRO


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