RJO Futures Website
February 4, 2014 Volume 8, Issue 3


Feature Article

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Exchange Info

2014 Market Outlook by CME Group, Blu Putnam

The U.S. economy appears poised for its best performance since the depths of the financial recession in 2008 and 2009. After four years of modest recovery, the economy has largely mended from the debilitating injuries received during the financial panic. And given the healthiest foundation for growth in more than five years, there are positive signs from the Federal Reserve and the energy sector that underscore the potential for superlative economic performance in 2014, although not without a few risks.

Call your RJO Futures broker directly for your personal copy of this 15-page paper.


Metals - Gold

Nick DeGeorge

In the early morning trade, gold is down roughly $10 and currently trading at $1249.7 a troy ounce. Gold has been in a tight trading range and consolidating over the last couple of weeks. The selloffs and rallies have been limited as investors and traders alike try and make up their minds if global growth may be faltering. Recent data has shown that manufacturing from China to the U.S. and the U.K. slowed. If data continues to show that global growth in fact is slowing, then you should see gold rally as demand increases for a safe haven. Therefore, there will be great interest for both gold bulls and bears on Friday's non-farm payroll numbers.

Let's look at the daily April gold chart and keep the technicals very simple. Key support for gold will be the January 23rd low of $1230.8 and if violated, look for selling pressure back down below $1200.0 an ounce. For the gold bulls, the key level for the shiny one to break above will be the January 27th high of $1280.1 and if broken, look for a rally up to $1350.0 a troy ounce. 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.

Apr '14 Gold Daily Chart

Source: RJO Vantage


Metals - Silver

The March '14 silver market continues to have one of its tightest ranges for almost three months in more than a year. The green lines below show the drop of open interest from August to November but since November it has been steadily increasing. An optimistic price performance to note is the low of 1860.0 from June. This market has tested this level a few times to 1872.0 and 1897 in the last weekly session but the market has been able to hold this support so far. The horizontal blue line below shows new support as last resistance from back in 2010. This level now holds as critical support as a break of this level can see the silver market trading much lower. The blue diagonal trendline from the high of 2011 to the week of Jan 13th shows a long formed down trend. As the two blue lines are about to intersect the assumption can be for a breakout in one way or the other, depending on how the news unfolds.

Yesterday. Janet Yellen was sworn in as the head of the Federal Reserve. The past has typically indicated an increase in precious metals prices surrounding a new Fed chair but the markets appear to be fairly unfazed by her swearing in. However yesterday, with the swearing in of Janet Yellen and a weaker than expected US ISM Manufacturing number, the S&P was down 45.00. Car sales reported lower than expected but it's being blamed on the unseasonably cold weather. Tomorrow and Friday we'll receive the ADP private employment number (191,000 expectations) and the government non-farm payroll report (184,000 expectations). After last month's dismal non-farm payroll report of 74,000 jobs created revisions will give insight into if the employment market is starting to stall or if it was a fluke in an employment market that's starting to pick up steam.

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.

Silver Weekly Continuation Chart

Source: Prophet X

Mar '14 Silver Weekly Chart

Source: RJO Futures PRO


Energies - Crude Oil


The April oil market has started to sell off over the last several sessions, falling from a high of $97.99 on January 31, 2014 to $95.63 which is today's low this morning. Recent EIA data has shown a build in the stockpiles and I think we will see more. Global demand is very questionable, most recent manufacturing data out of China is the weakest it's been in six months and emerging markets continue to air their dirty laundry. US economic data continues to go back and forth with yesterday's manufacturing data in the US weaker than expected. Watch for the unemployment report due out this Friday. In addition, continued tapering action has the potential to help strengthen the US dollar which in turn should help put pressure on the oil market. Price action in the oil market so far this week has suggested to me that the market is ripe for rollover. Traders are looking to the EIA data due out tomorrow, most are looking for a build of about 1.75 to 2 mill barrels. Stockpiles still appear to be more than ample standing at 357.6 mill barrels, which is running about 94 mill more barrels of oil than our lowest stocks for this time of year and about 12.5 mill more barrels of oil than the 5-year average for this time of year.

On the technical side, short-term indicators appear to show the market in an overbought 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 if the market stays with an inside day today, you could look to sell the break tomorrow if it happens. For the more conservative bear, I would look to start establishing short positions around the $97.25 level basis the April oil, but make sure you protect yourself if there is a push higher. Or, call me if you prefer to trade with options as I am currently recommending a bear put option ratio spread using April 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.

Apr '14 Crude Oil Daily Chart

Source: RJO Vantage


Energies - Natural Gas

Bill Moore

Wow… Where to begin? To recap the last two weeks of trading in the natural gas, we have had a tremendous amount of volatility in the continuation of the upward channel of prices. Not once but twice we saw a 10% gain in the daily prices on the March Globex contract, (GNGH14). Both times we had a correction the next day that gave back all of that 10%. While a dollar gain in two weeks of the natural gas contract may not sound like a big deal, it's the extreme volatility that we have seen that has most traders either worried or scratching their heads, depending on which side of the market they are on. Volatility levels reached such a high last week that March $10-12 call options with under a month of time value saw premiums rally to 300-500+ dollars. While things have started this week off on a relatively quiet foot, there is no doubt that both hedgers and speculators alike were pulling up their 5-year continuous charts, looking back to 2008 for a defined resistance point. Lest we forget, natural gas has tremendous upside potential. Prices touched well above 13.00 in July of 2008.

So what is going on and why is this happening? The easy answer is that extreme cold and adverse weather has caused a supply crunch for certain areas. The last traded price today is 5.095 on GNGH14. That is the composite number for all natural gas. Locally in certain areas of the United States, we saw prices reach well above $80.00 in the cash market! Natural gas is still the most popular commodity used for heating purposes and this extreme winter is still showing its effect on the market. EIA inventory saw a draw of 230 BCF last week. Don't be too deceived by this number, there is still plenty of natural gas in our inventories. The worry should be in how price sensitive this market can be to the slightest supply crunch. Energy companies have been toting that they have big intentions for natural gas use and production heading out as far as 2025. If it is indeed the wave of the future to compete with big oil/coal, they are going to need to work on more stability in prices. Can you imagine having a market where gas in Phoenix costs $3.00 a gallon and gas in New York City costs $40.00 a gallon? These discrepancies as well the costs of shipping will be hurdles in the coming years. Now, having said that, I think that these are goals we are capable of reaching. My overall impression is that this market is putting its cards on the table, and what we are seeing is that the potential for demand and upside is definitely there.

Now, let's look at the charts and the way people are making money. As I had mentioned before, call options have been extremely volatile. Buying 6500, 7000, 8000, 10000 even 12500 March calls at the right time have been extremely profitable. Likewise, selling these inflated options at the right time (If you have the risk appetite for shorting naked options) has been a great investment. Pay very close attention to all possible ideas. If 10% daily volatility with futures is too much risk appetite, explore the idea of buying out of the money calls.

Technically, we have been somewhat defined to a 4700 – 5400 range on the March '14 futures. Momentum on a short-term is slightly lower but that comes with a caution flag. We closed above the 9-day moving average which is still bullish. Look for support around 4820 and 4700. Resistance points are 5200 and 5400.

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.

Mar '14 Natural Gas 9-Month Daily Chart with Moving Averages, RSI and MACD

Source: RJO Vantage

Natural Gas 6-Year Continuous Daily Chart

Source: RJO Vantage

Softs - Sugar

Joe Nikruto

This week's March sugar futures commentary finds the market engaged in a healthy bout of short covering. The wire services are teeming with reasons for the price action. At the top of the list is hot and dry conditions in Brazil, followed by the potential for political conditions in India and Thailand to impact supply. It is likely, in my opinion, that none of these will significantly impact production or supply of sugar but admittedly make for perfect reasons to take profits on long held short positions. Like fire, short covering of long held positions can spread quickly. Moves through technical levels such as moving averages and retracement lines can lend momentum and the short covering may feed on itself. For example, as the market moves up through the 50-day moving average with gusto stops are hit and traders are forced into action no matter what their take on the fundamentals may be. At the time of this writing, 10:00 AM CST Feb. 4, March sugar futures are trading at 16.15, above the 50-day moving average for the first time since Nov 6, 2013. Within shooting distance are the swing high of 16.58 from Dec. 31, where long-term trend followers have stops, and the 38.2% retracement of the downtrend, 16.79. With the size of the Large Spec short position upwards of 90k contracts, it is difficult to gauge how high will be high enough to force capitulation. Today's action will be reflected in Friday's Commitment of Traders report so we will be able to get a good read on if and by how much the Large Spec short position has been reduced. Might be too early to say the Great Sugar Bear is on his last legs. But, the rapid price increase and the ability of sugar to move in one direction violently for an extended time make the question more one of capital preservation as opposed to whether or not this is a trend change.

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

The near-term top in cotton on 1/21/2014 highlighted a "bearish" divergence signal between price and momentum as the RSI indicator failed to make a new high to confirm new relatively higher highs in price. The knee-jerk reaction from this signal is evident in the substantial correction that occurred six days later on the 27th of January as price sold off in a violent correction. Nevertheless, cotton remains in an Intermediate term bull trend environment. The market has continued to put in higher lows, indicative of underlying strength in the market. Furthermore, prices are supported by large export sales in the cotton market. So long as the market continues to produce higher lows and higher highs, the path of least resistance appears to be to the upside.

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

March cocoa has pulled back this morning. The contract has traded in a tight range of late – with the last five closes within a 13 point range. Currently the 9-day moving average has been a level of support, as shown in the chart below. If we close above this area again it is a short-term positive trend. We have reached overbought levels and should see some more profit taking as we have trade below 2900 today. Conditions in West Africa are dry and rainfall has been average, adding to the stagnate news. Port arrivals in Ivory Coast remain ahead of last season's pace. Although we have positive supply news, the overbought levels have caused us to trade in the tight range that we currently see. Support is at 2890, 2870 and resistance is at 2928 and 2960. For now, look at the technicals for entry and exit points, as the fundamentals haven't provided direction in the market over the past week.

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


Softs - Coffee

Adam Tuiaana

We've continued to monitor the recently-violated 130 level in coffee, and prices have now taken a bounce to levels not seen since early June. Traders appear to be reacting to reports of dry, hot weather in Brazil, but will this weather premium be enough to hold support at the 130 level? My answer still remains "yes." I believe that the near-term supplies are exhausting quickly, and the long-term outlook is still sketchy, but favoring long-term bulls with time-cushioned strategies. In my last article I wrote, "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. " I still agree with this.

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

In low volume, the overnight trade has been mixed with traders awaiting key reports for market direction. We are supposed to have a turnaround Tuesday with corn and soybean prices selling off. That is not what is happening. March soybeans are up 21.0, March soybean meal is up $12.0, March wheat is up 130 and March Corn is up 4.4. These are big moves. US wheat futures have found support on some good short covering and disappointing new crop condition ratings from late November. Stats Canada released their December Stocks report this morning with record large wheat and canola stocks. The huge stocks are being held by producers due to logistical snarls of Canadian railways. As the weather warms an increasing number of Canadian farmers may decide to truck their grain to the US due to strong US cash bids.

Seasonal and less stormy weather is projected for the Central US beyond February 14 .The mild and less stormy weather should allow for a thaw in the last half of February. Transportation logistics should improve.

I really doubt that rallies can be sustained with producers starting active cash selling. The trade has been bearish soybeans on expectation of the cancellation of Chinese purchases. This bearishness was built into the market and these cancellations have yet to materialize. This makes this short covering rally in soybeans possible.

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 Corn Daily Chart

Source: RJO Futures PRO


Agriculture - Livestock

Jeff Gilfillan

Choice beef cutout was quoted at 220.10 yesterday down from 238.04 from last week. The futures market has sold off in reaction to the swift reversal in cash. As of January 28th, non-commercial net longs held a record 147,217 contracts. This set-up a round of profit taking once the equity market let some air out beginning on 01/23. April live cattle futures support comes in at 138.30 - 138.95 with a washout print possibly down at 137.90.

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. National Beef announced on Friday it would close its CA fed beef plant on April 4th.

Supply concerns will not go away as heifer retention has gone up, packer margins have gone back in the red and the cycle to rebuild the herd is far away. Demand should remain sporadic for the near future but once the winter freeze thaws, I would expect the upcoming Spring Break / Easter season to see a massive amount of pent-up demand to support higher retail prices.

Look for the markets to keep a strong underlying bid. Hightower research recently recommended selling April puts. See RJOF Research. 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 Weekly Chart Combined

Source: GeckoSoftware.com


Interest Rates

Eli Tesfaye

The market has been trading higher in the past few sessions due to flights to quality longs. This week already started with weak ISM manufacturing index data and I expect most of the upcoming economic reports to come in on the weak side for the rest of the week.

Two Fed members are scheduled to speak today. Richmond Fed President Mr. Jeff M. Lacker already spoke. Mr. Lacker is considered hawkish and he has long opposed aggressive stimulus and he has stated this morning that he expects taper to continue by $10 billion per month at each FOMC meeting unless there is a high hindrance to pause taper. Later today, Chicago Federal Reserve Bank President Charles Evans, considered the most dovish Fed member will speak.

The consensus of course remains that the Fed will scale back its quantitative easing program at a rate of $10 billion at every policy meeting this year and end the program by December. My view is that the Fed may be forced to halt its taper of the quantitative easing program later this year if the U.S economy shows signs of weakness.

In my last eView commentary I wrote about the benefit of trading Eurodollar futures. I like trading this contract because of its low margin, high liquidity and reasonable volatility. Also, Eurodollar is the best instrument to trade interest rates. Specifically, I like trading the Dec 2017 contract on the short side. Time is not here yet, but it is fast approaching. I am waiting on better opportunity to be short the Dec 2017 Eurodollar around 97.10 or higher. Give me a call or email me to discuss specific trading strategies.

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 Daily Chart

Source: RJO Futures PRO


Equity Indexes

Greg Perlin

The S&P enters today on a slightly higher track and has been able to shake off extreme weakness in Asia overnight. The intermediate trend for the March S&P favors the bear camp, but extremely oversold technical conditions leave the potential for a corrective rebound. The latest commentary out of the Fed suggesting that a falling equity market would not prompt them to pull back on their tapering agenda sets up a negative paradox. There also is a great deal of fear in the market as we saw a big jump in the Vix this week, which is a measure of fear in the market. The strategy I would suggest would be to sell into strength, especially in front of Friday's big employment number.

If you'd like to learn more about futures trading or the Equity Indexes market specifically, please contact Greg Perlin at 800-826-2270 or gperlin@rjofutures.com.


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