RJO Futures Website
February 18, 2014 Volume 8, Issue 4


Feature Article

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Futures Trading Strategy

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  • Key components of a strategy and why you need one
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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

Bob Haberkorn

Gold has had a great move over the last week with a break out happening once it closed above 1280 but it does look like momentum is running out a bit this morning. Currently, the contract is trading at 1322 with an overnight high of 1332. With the pullback from those highs this morning I would be reluctant to add to any long positions unless this market is able to trade back to 1332. In that case look to get long for the momentum move to 1350. However, at its current level I do like the downside in gold and I am anticipating a move back to test the 1300 level. You might say these are wide levels and yes, they are but I am expecting an uptick in volatility in the precious metal markets which is an excellent opportunity for traders who utilize options. If you have any questions and would like to discuss how to use options on the coming volatility please give me call.

If you'd like to learn more about futures trading or the metals market specifically, please contact Bob Haberkorn at 800-826-1120 or rhaberkorn@rjofutures.com.

Apr '14 Gold Daily Chart

Source: RJO Vantage


Metals - Silver

Hello silver, welcome back. After an almost three month consolidation between the tight ranges of 2067.0 to 1872.0 the March silver market took some initiative and broke out aggressively to the upside, rallying 100 points on Friday. With such a strong move the beginning of a new bull market could be starting to rear its head. Interesting to note about this has been the seeming improvement in the US economy. The general economic information has been fairly decent except for the past two month's reports. The weather has been the major blame, causing havoc on employment amongst other information. This also comes on the heels of the FOMC deciding to dial back their bond purchases by $20 billion over the past two months to $65 billion. The market has known about the slowdown so what's concerning is the market didn't rally on the initial information, but has waited until now to make its move. The concern then might not be what's behind us but what is up ahead.

Old resistance becomes new support, as the 20670 level is the new support on the March contract. This market is trading and closing above 20.00 for the first time since last November, with 2311.5 as next resistance and 2508.0 the level this market has to close above to continue the bull trend. A failure of this aggressive rally and closing below 2067.30 could see this market making new yearly lows; otherwise the ability to hold this strength might get this market back into the 30's.

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 Vantage


Energies - Crude Oil


April crude oil has continued to work its way higher despite what I would consider to be bearish data. April oil posted a new recent high of $101.36 a barrel early this morning, almost $10 a barrel off its January 9th lows. Last week oil appeared to be losing upside momentum only to break higher in today's session. The real question is where does oil go from here? I believe lower. Current oil stocks still appear more than ample standing at 361.352 million barrels. Last week we saw a build of 3.267 million barrels, the 5-year average is running 348.474. To put our total stocks in perspective lets first look at our lowest stock piles for this time of year which was in 2004 when oil stocks stood at 268.882. Now let's look at our highest stocks for this time of year which in 2013 stood at 372.245. So as one can see current stocks are running very close to the highest stock piles of oil. This coupled with economic data that still continues to be a mixed bag here in the US and globally would lead one to believe oil may be in store for a pull back.

Short-term technical indicators appear to be overbought, but yet the charts have been showing a pattern of basically higher highs and higher lows. Although at these levels the market might be approaching an area of serious resistance. So the question remains how to play oil to the short side? I believe one way may be through a bear put ratio spread specifically buying one near the money put and selling three deeper out of the money puts. Please call me for specific strikes and risk management ideas.

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

Thomas Power

Natural gas prices advanced to the highest level in two weeks as the market opened higher Sunday and continued the rally into Tuesday morning ultimately reaching the critical $5.55 target. The fundamental driving force behind this bull move has been the frigid temperatures and above average snowfall that continue to pound much of the Northeast. However, forecasts are calling for above average temperatures in key demand areas later this week and with prices at two week highs this could send traders scrambling to take profits. Looking at the technicals, a close above the 9-day moving average suggests the short-term trend remains positive and a close over the pivot number would confirm the upward trend is still in play. Keep a close eye on the weather for clues, but look for a next upside target of $5.65 and above that a retest of the high at $5.73 in the March contract with downside support at $5.08 and $4.90 below.

If you'd like to learn more about futures trading or the energies market specifically, please contact Thomas Power at 800-438-4805 or tpower@rjofutures.com.

Mar '14 Natural Gas 15-Minute Chart

Source: RJO Futures PRO

Softs - Sugar

Joe Nikruto

This week's commentary finds the May Sugar futures contract continuing to carve out a trend change. After back and fill action last week the market today is up over 40 points and working on breaking out above the swing high of 16.58. This will leave the market within shooting distance of the high from the 31st of December, 16.70 and the 38.2% retracement level, 16.72. The Hightower Group in their commentary from this morning further highlight the change taking place in terms of ownership of the futures contracts. The commercial trader has swung from long to short and the fund trader has swung from short to long. This represents a sea change in sentiment as the funds have been heavily short to the commercials long for some time now. This is what Floyd Upperman, COT expert and trader calls the "fuel" for a changing trend to continue to advance in a new direction. "Funds don't stay flat" is an old trading cliché that turns out to be true more often than not. As the funds gets stopped out of long held short positions the market advances and moves toward technical levels that force the funds into new long positions. There can be some back and fill and fundamentals may have something to say about it as well. The market appears to be pricing at the very least, an end to the burdensome supply situation. In this case drought in Brazil has traders on edge as a good amount of the world's sugar comes from there. Threats to supply, especially in Brazil, can inspire short covering and, in this case at least, build the beginnings of a positive technical picture. Many traders find it wise to let the technicals guide them in times where a trend is changing. It is rarely profitable to stand in front of the freight train that is the funds as they build a position. However, it may take more than short covering and the threat of supply disruption to ultimately turn the trend in sugar up.

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.

May '14 Sugar Daily Chart

Source: RJO Vantage


Softs - Cotton

Erik Tatje

Cotton has been trending nicely over the past few months as the strength in this market has pushed the May contract to new highs. The 20-day moving average remains above the 50-day moving average, confirming the bull trend environment, and pullbacks into this moving average "band" continues to offer valid buying opportunities. The intermediate-term trend remains positive above the 1/27/2014 low of 8424 on the chart and near-term bullish momentum appears to be in play above the 8700 level. All things considered, the market is now in a healthy bull trend environment. The most recent candles have shown some relatively long upper shadows, which could be indicative of some profit taking at these levels. Looking at price relative to the 20-day moving average, an argument could be made that current price may be a bit overextended to the upside. The 14-period RSI is fast approaching the 80 level and a corrective pullback from here is a real possibility. All things considered, cotton continues to look strong at these levels, and buying corrective pullbacks into support could prove to be a valid risk/reward strategy.

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.

May '14 Cotton Daily Chart

Source: RJO Vantage


Softs - Coffee

Adam Tuiaana

March coffee is feeling some serious bullish caffeine highs from weather related issues in Brazil. Apparently, these hot and dry weather issues are no longer ongoing, but the Hightower Group has reported that the recent rainfall is "too little, too late" for this season's crop. Typically this time of the year has decent rainfall amounts for these significant growing areas, and this recent hot and dry weather may have affected the new trees that need a significant amount of rainfall to yield decent numbers.

On the technical side, a bullish pennant can be seen after days of consolidation, along with a recent breakout at the apex of the triangle. This is typically a continuation pattern of the current trend, which in this case is intermediately up. Bullish pennants are typically known to "fly at half mast", meaning, we may see a run up in coffee prices (measured from the breakout of the apex), equal to the most recent rally (from the February lows). A quick measurement has this strategist conservatively projecting a run to the 164 level in the March coffee contract. Traders should consider using call options to manage risk, and allow themselves time in the trade.

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 - Livestock

Jeff Gilfillan

Choice beef cutout last close was 210.98. The cash market is far below January highs but finding some support. As of February 11th, non-commercial net longs held a record 153,933 contracts. April live cattle futures support comes in at 140.50 then 139.00. We are currently trading (142.05 last) above short-term resistance at 141.725 with next resistance at 142.675.

Prices across the board need to remain high to rebuild supply and packers need to adjust their capacity to reflect demand elasticity at end of the line. Live cattle supply concerns will not go away soon as heifer retention has gone up and beef cattle producers have more incentive to build weights. The SE states are showing signs of rebuilding stocks and should see good profits in 2014 at the feeder level.

Look for the markets to keep a strong underlying bid. The weekly front-month charts show value at 135.00 which could be a washout level in response to a test of the net record longs.

Hightower research posted an idea this am (02/18) for aggressive traders and last recommended selling April puts. I recommend selling futures and buying calls and spreading April / June currently. 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

March Bonds and Notes are higher during today's morning trading hours. The support comes for weakness in global equity markets and anticipation of weaker US economic data this week. Additionally, higher Treasury prices are supported by bullish influence of weaker inflation in the U.K.

The Fed will continue to monitor economic activity and continues to ease its "accommodation" each policy meeting by 10 billion. The Fed exit strategy is of course very measured and mindful to not cause any disruption to the fragile financial system.

In the last eView, I discussed a Eurodollar trade recommendation to sell December 2017 at the price of 97.10, since then the price has moved to a low of 96.88 and rebounded slightly. As I write, the Dec 2017 Eurodollar is trading at 97.05. Since this week's economic reports will likely be supportive to the bull camp, I believe it is better to stand aside and wait for another opportunity to get short. I would recommend to short Eurodollars with the idea that at some point in the near future inflation will edge higher and force the Fed to take further action over and above ending the Q3.

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

Jeffrey Friedman

The economy in the first quarter of 2014 is not getting off to a good start with soft numbers for retail sales and industrial production. The key question is whether softness was due to severe winter weather in January or fundamentals.

Super bad weather appears to have weighed on retail sales and industrial production. There will not be certainty on this until data based on typical weather are released, which means data for February or even March. Meanwhile, the Fed will have to sort out weather effects from underlying strength or weakness in the economy. Uncertainty clearly is higher due to weather.

Taking into account severe winter weather in January, 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 strong to the upside this past week. The Dow futures was up 2.2 percent; the S&P futures, down 2.2 percent; and the Nasdaq futures, up 2.8 percent. For the year-to-date, major Stock index futures are down as follows: the Dow, down 2.4 percent; the S&P 500, down 0.4 percent; and the Nasdaq, up 1.5 percent.

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 an sideways to uptrend, with most chart followers targeting 1847 as their target for resistance and then at 1882. The market must stay below 1797 if a stall is going to develop. A close under 1797 could give way to 1770. A close under 1770 could have the bears run this market down to 1732.

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


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