RJO Futures eView Newsletter - May 12, 2015 | Market Insight | RJO Futures

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May 12, 2015

Volume 9, Issue 10

Metals - Gold

Could Gold Weaken with Current U.S. Dollar Highs?

Nick DeGeorge

In the early morning trade, June gold is currently up $7 and trading at $1190.0 per ounce. Gold is having some trouble getting and staying above the $1,200 an ounce handle. With the higher U.S. dollar and reports of weak physical demand, which is supported by gold mining company earning, the gold market might be due for another sell off if it cannot get above the $1,200 level.

If you take a close look at the daily June gold chart, you'll see with the tight trading range that gold has been experiencing since the middle of March that it has created a symmetrical triangle pattern. This chart pattern is usually an indicator that a big move is about to happen. It looks like the top trend line is coming in around $1209 today and the bottom trend line is coming in today at $1175 per ounce. Therefore, for the bulls, if it breaks and holds $1209, look for a rally all the way up to this year's high back on January 22 of $1309. For the bears, if it breaks and holds $1175, look for a retest of the March 17 low of $1142.4. However, if this support doesn't hold, look for a run at the $1100 per ounce handle.

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.

Jun '15 Gold Daily Chart

Source: RJO Futures PRO

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Metals - Silver

Silver Market Still in Consolidation

Michael Rataj

I'd like to focus on the last nine months, roughly the amount of time this market has been in its latest consolidation. What becomes important in these consolidative ranges is the near-term support and resistance. A trader could have been in trouble playing for a breakout to the downside five times over the last nine months, only to have the market pushed back into their face. Conversely, that's happened to the upside as well. 1530 remains the long in play support on this market with 1670, 1731 and 1853 the three levels to the top this market needs to break to resume any type of bull. With the aforementioned levels in mind, traders can use risk management accordingly to their bias.

If you'd like to learn more about futures trading or the silver market specifically, please contact Mike Rataj at 866-536-8601 or mrataj@rjofutures.com.

Jul '15 Silver Daily Continuation Chart

Source: RJO Futures PRO

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Energies - Crude Oil

More Pullback Expected for June Oil Production

Mike-Sabo

Oil continues to be consolidating (see chart below).Stock piles have continued to grow to new record highs for this time of year and yet prices have steadily risen. EIA last week reported a draw in the stockpiles of 3.9 million barrels, the first draw in stocks we have seen in sometime.This put total stocks at about 487million barrels, well above the record high for this time of year of 381 million barrels.

EIA monthly production data is forecasting another pullback in U.S. shale oil production during June. Traders should watch tomorrow's EIA data - most traders anticipate seeing a draw which could be factored into today's price action. The weaker U.S. dollar is also helping lend support to the market as well as a Saudi led coalition bombing the Yemini capital - the market appears to be holding on to some "fear premium".

Short-term technical indicators are still a bit neutral, in my opinion. I am still cautiously bullish, especially after the inside day yesterday and the upside breakout today. I do think, however, oil could pull back to about $56.60 basis June oil which would mean a pull back under the 10-day moving average. The 50-day moving average has been approaching the 200-day moving average but at a fairly slow pace. Watch for the market to possibly make a small pull back and then look to position to the upside.

For futures traders, I recommend waiting for a breakout. For options traders, using the proper strategy such as a call-fly-spread or bull call spread could help you take advantage of a move higher. Please call me for more details or to discuss some strategies.

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.

Jun '15 Crude Oil Daily Chart

Source: RJO Futures PRO

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Energies - Natural Gas

Natural Gas Hits Impressive Highs

Avery Burton

The past two weeks have been nothing short of impressive for the natural gas market. Despite expected builds to inventories and no recent spikes in demand, the bulls have finally stepped in with force to cause a near $0.40/mmbtu gain in just 10 trading days.

It appears this move all started after June natural gas opened Monday, April 27 with a six cent gap lower. While prices had already been weaker for well over six months, enough may have been enough. Immediately this gap was filled and the market didn't stop there. Prices continued onto new monthly highs in just a few more days. In fact, with yesterday and today's test of $2.93/mmbtu, natural gas has been one of the best performing commodities this month.

Many traders are unsure if this is just another rally that will be sold or if a bottom is actually in place. Back in February, a similar question was raised when natural gas prices rallied about 40 cents in a similar two week period. In the end, that rally was in fact sold.

Unfortunately, the current fundamentals in this market may not have enough juice to support much further of a recovery. While seasonally summer months do see a bump in natural gas usage (electricity generation, commercial air-conditioning), I'm not convinced that this will be enough to turn around such a long-term bear trend.

If this market is indeed ready to turn the trend around, we will first need to take out March's high of 2.982. From there, the next target that would need to be achieved is February’s high of 3.096. Until such trades occur, downside targets exist at the 2.80, 2.74, 2.67, and 2.48 levels. This recent rally not only pulled us away from oversold indicators, but we may actually be a bit overbought right now.

If you'd like to learn more about futures trading or the energies market specifically, please contact Avery Burton at 866-741-0339 or aburton@rjofutures.com.

Jun '15 Natural Gas Daily Chart

Source: RJO Futures PRO

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Softs - Sugar

Sugar Futures Still on the Rise

Joe Nikruto

This week's eView commentary finds July sugar futures continuing to work higher. Since our last issue, there have been a few interesting fundamental developments. A giant delivery in May sugar-which the wire services say was record large-speaks to improving demand. Maybe just as interesting, is a signal that index funds are adding to long positions by almost 6,000 contracts in the last reporting period, according to the Hightower Group.

Index funds typically don't pay attention to technical or fundamental information about the commodity futures they hold. Their positions are placed as hedges against inflation and as individual commodities get expensive they are moved out of the index holdings to make room for relatively less expensive commodities. I'm not suggesting we should look to index funds as predictors of commodity price movement, but they own a pretty good chunk of the open interest. And, if they are on the buy side and alpha chasing commodity funds continue to exit short trades, the path of least resistance is higher.

Technically, a close over 13.51 in the July contract further forces the short fund trader, who holds 40 thousand plus in short positions, to the sidelines. Funds don't stay flat. A close over 14.13 will force the intermediate-term trend follower to begin to establish long positions. The technical action is rather strong considering the narrative in the background remains that there are abundant supplies of sugar globally. The "cup with handle" formation still stands but just barely. The bottom of the handle is 12.35. The low on April 21 was tested and held on May 5 as the market touched 12.41 and then closed higher on the day. We have seen a higher close almost every day but one since then.

The 10- and 18-day moving averages have crossed above the 50-day moving average as well, a further bullish development. A channel has formed on the chart and it is possible that for now, sugar is just a trading affair moving from the top of the channel back to the bottom, stuck in a well-defined range. If the commodity funds continue to cover their short-position and the bearish (and well known) supply situation remains muted by technical action, this market could continue to the upside. It could be trading over 14.50, on its way to test 15.00 in no time at all. Buy calls and use 12.35 as your line in the sand for risk management purposes.

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.

Jul ’15 Sugar Daily Chart

Source: RJO Futures PRO

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Softs - Cotton

USDA Report to Determine Strength of Cotton Futures

Erik Tatje

With preliminary expectations for the 2015-16 world consumption set to surpass production for the first time in a long time, cotton futures may be poised for further strength following today's USDA report.

Headlines of ample global supply of cotton have dominated the news over the last few months, keeping the longer-term bearish outlook relevant. However, that theme may appear to be poised for a shift in the coming year. Cotton has been building a base and making relatively higher swing highs and higher swing lows since bottoming in late January.

From a technical standpoint, price action was able to confirm this strength by producing a new relative high above the 6654 swing high from late February. Given the current state of the market, the path of least resistance in this market 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.

Jul '15 Cotton Daily Chart

Source: RJO Futures PRO

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Softs - Cocoa

Higher Levels Expected for Cocoa Market


The continued story in cocoa is supply and demand. Asia's demand for cocoa is growing. Ghana's production concerns have provided support. If Ghana's production comes below 700,000 tonnes and Indonesia has their own supply issues with El Niño weather hurting their crops, we could be headed for a significant global deficit.

Technically, strong resistance at the 3020 level has been broken. Monday's close was the highest since March. The bullish trend has taken over and the next target level is 3150. For traders looking for upside exposure, consider buying September 3200 calls at 45, 450.00 real money. Last September, cocoa traded over 3300.

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.

Jul '15Cocoa Daily Chart

Source: RJO Futures PRO

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Softs - Coffee

Still No Sign of Low in Coffee Futures

Tony Cholly

Dollar weakness helps support, but still no sign of a low. Although coffee has bounced off of the recent lows, the fundamentals have not shifted and the market should see further weakness into the Brazilian harvest. Weather has also been favourable in Brazil and more rain should support growth this year to help finish off the crop, but is mostly negative for the next year due to good vegetation growth. Weakness in the Brazilian real and ideas that weather outlook is still bearish are the main factors helping to place pressure on the market.

The lower U.S. dollar might provide some early support but volatile financial markets could spark some selling if equities break. There is still no sign of a low in July coffee, so look to sell rallies. Resistance could be at 136.10 and 138.20 in July. Minor support could be at 132.05 and if it doesn't hold, keep 125.15 as next downside objective.

There are several strategies that traders can apply in this situation. Call or email for specific strategies.

If you'd like to learn more about futures trading or the sugar market specifically, please contact Tony Cholly at 800-826-2270 or tcholly@rjobrien.com.

Jul '15 Coffee Daily Chart

Source: RJO Futures PRO

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Agriculture - Grain

Can World Demand Absorb Oversupply in Grains?

Stephen Davis

Good afternoon traders. It is a report day with the USDA/NASS/WASDE to release their May crop and ending stock estimates for both old and new crops. Most importantly, it offers the first new crop world balance sheets for wheat, corn and soybeans.

Most important in today's report will be U.S. and world demand forecasts. The world currently has an oversupply of grains and oilseeds. The key question is whether world demand can absorb that supply without a substantial build up in 2015/2016 stock piles.

U.S. farmers have planted 75% of their corn and 31% of their soybean crops. The USDA may make some adjustments to achieve a lower ending stocks for soybeans and higher ending stocks for corn. The USDA can increase exports of soybean due to the robust sales pace in recent weeks. There also can be an adjustment in soybean crush demand but the USDA may wait until a later date for that increase. The grain trade is also looking for an increase in corn stocks due to a likely drop in corn feed use.

Unless the USDA May report offers some shockingly bullish surprise, it is hard to trump highly favorable U.S. and world weather forecasts.

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.

Jul '15 Soybean Daily Chart

Source: RJO Futures PRO

Jul '15 Corn Daily Chart

Source: RJO Futures PRO

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Agriculture - Livestock

Firm Cash Cattle with Widening Futures Spreads

Jeff Gilfillan

Cash cattle has been firm the past week offering recently at 163-164. This leaves the futures discount to cash in June delivery nearly $15 under. The futures market is pricing in strong feedlot supply and post -holiday softness into the heat of the summer. Futures spreads are widening and bears may be better off using this strategy vs. outrights considering the steep discount to cash.

We are in a range bound market and are currently testing the lower end of the 12-month range. The market has likely discounted the heavy weights going into and out of the feedlots as well as the seasonal production slowdown. The live cattle weekly chart is setting up for a potential head and shoulders. If the neckline is broken a potential move to $130 is in the cards. I am not sold on this based on the strength of the cash fed cattle and the feeder futures. Nevertheless, I recommend staying short cattle spreads (see previous two biogs).

The charts are telling me feeder cattle may have some room to back and fill vs. live cattle. A good buy area to purchase Sept FC over Oct LC is $46,500 to $47,000 differential. Also, consider selling June hogs or selling calls in the 86.75 to 88.350 range.

Please feel free to contact me directly anytime with questions.

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 Weekly Chart


Source: GeckoSoftware.com

Feeder Cattle Weekly Futures


Source: GeckoSoftware.com

Long February 2016 / Short October 2015 Live Cattle Futures

Source: GeckoSoftware.com

Long February 2016 / Short October 2015 Live Cattle Futures

Source: GeckoSoftware.com

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Currencies

Daily Market Update - Currency Futures - 05/12/2015

John Caruso

RJO Futures Senior Broker John Caruso discusses currency futures markets. The dollar is trading down today while the euro and pound are both trading up. The BOE was hawkish at the last meeting. Retail sales and jobless claims numbers to come this week.

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.

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Equity Indexes

Europe in the Driver's Seat for Equity Futures

Greg Perlin

The E-mini S&P fell for a second day in a row Tuesday as European equities and government bonds sold off. The losses followed a sharp sell off in European stocks with the German bunds down earlier in the morning near 1%.

Europe is really in the driver's seat right now and what happens in Europe is spilling over here in the U.S. Many institutional investors have piled into long positions in the European bond market. As bonds began to slump, many investors had to unwind their positions which exacerbated the move.

Very similar moves occurred in our treasury market, where the 10-year note briefly touched 2.30, its highest level in recent months. Historically, when you see a rapid move higher in rates, it has a tendency to knock down equities. As I write this morning the E-mini S&P is at 2083.50, down $14 or 0.7%. Continue to pay attention to both the U.S. and European bond market for direction of the E-mini.

Technically, the surge on last Friday returns the market back to the bull trend and leaves trade positioned to attack for a breakout into new highs. A close over 2119.75 should launch a drive to 2140 or higher. We may see minor corrections inside Friday's range, but sideways consolidation will provide a staging level for rallies. Only a close below 2078.50 rejects the upturn.

Please call or email me if you would like more insight on the markets or if you are interested in trading these dynamic markets.

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.

Jun '15 E-mini S&P 500 Daily Chart

Source: RJO Futures PRO

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