RJO Futures Website

August 4, 2015

Volume 9, Issue 16

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Metals - Gold

Slight Pullback in Gold after Weak U.S. Economic Data

In the early morning trade, October is up slightly and currently trading at $1090.5 an ounce.  Mostly due to weak U.S. economic data and the slight pullback in the green back as well. Also, there is still the U.S rate hike on the horizon despite the recent weak data that might have investors and traders alike buying up gold off its July 24 low of $1,072.8, which was the lowest level since February 2010.

For the gold bears, if it fails to get above $1,105.0 and also close above that price, then look for a retest of the July 24 low and if broken, I would expect a sell off to the $1,000 an ounce handle. For the gold bulls, if it does in fact break and hold the $1105.0 resistance level, then look for a rally up to at least $1144.6, which was the March 17 low and held for nearly four months.

Oct ’15 Gold Daily Chart

Source: RJO Futures PRO

Oct ’15 Gold Daily Chart

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Currencies

Daily Market Update - Currency Futures - 08/04/2015

John Caruso

Tepid U.S. economic data has been coming out the past few days. The big mover today is the Australian dollar.

 

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Metals - Silver

Fed’s Effect on the Silver Market

Silver’s slow decent to support of 1410 continues in the two weeks since the last eView, bottoming near term at 1433.  The main fundamental focus on trader’s minds is when the FOMC will do their first rate hike in almost a decade.  Since the last eView they met for their meeting on July 28-29 and were mostly optimistic for their outlook that they would do it in the near-term, with some speculating it could happen at the September meeting.

The labor market continued to improve, with solid job gains and declining unemployment…The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced…The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.” You can find the full report here.

With the FOMC not seeing any substantial risks in the market this could help explain why the metals markets have been fairly stable to moving lower.  As the situation keeps improving there doesn’t appear to be a reason for the metals to rally.  However, this could be the most telling sign, as when everyone is expecting something, when the unexpected appears it can be that much more dramatic.

Sep ’15 Silver Daily Chart

Source: RJO Futures PRO

Sep ’15 Silver Daily Chart

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Equity Indexes

S&P Awaits Friday’s Reports, Fed Rate Hike Decision

Greg Perlin

The e-mini S&P is flat this morning as commodities and oil have seemed to stabilize after both suffering major losses yesterday and most of last week.  Investors are just trying to navigate through earnings season now and waiting to see if economic data can help the Fed decide on when to make its first move on any potential rate hikes. 

The market currently lacks direction and continues to watch every economic piece of data with both eyes open.   Traders will be watching the ever important employment report that comes out Friday morning at 7:30 a.m. CT. The jobs report on Friday is expected to show an increase of $225,000 in July with the unemployment rate holding at 5.3%.   

There has been a lot of negative news since Friday and the consensus is the Fed will hold off until next year before raising rates.   But traders should remember when Fed Chairwoman Janet Yellen spoke in July she stated that she expected the Central Bank to raise its benchmark rate this year while emphasizing the pace of increases will probably be gradual.  It would not surprise me at all if we get a number on Friday north of 300 thousand and everybody will begin to talk about raising rates again as soon as September.   Good support in the e-mini S&P comes in at 2076.50 and resistance comes in at 2109.  

Sep ’15 E-Mini S&P Daily Chart

Source: RJO Futures PRO

Sep ’15 E-Mini S&P Daily Chart

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Energies - Crude Oil

Crude Oil: Black Gold

Since the last eView, crude oil has continued its downward slide.  Since the high on July 1 to the low today, September oil has dropped almost $14. The bears have been rewarded while the bulls continue to wonder what it will take to see a bounce in the market – while bears are abundant, I don’t see much more downside in store for the market.  Yes, the trend has been lower (with the benefit of hindsight) but if our economy is truly recovering then shouldn’t demand start to pick up?

We have seen notable drawdowns in several of the EIA Reports and refinery capacity utilization is running higher year over year and has been for quite some time.  How much more bearish can or will it get?  Some bullish news in this market could cause a short covering rally.  Iranian Oil Minister Bijan Zanganeh has made comments recently that he believes once (or I say IF) sanctions are lifted, Iran would produce about .5 mil barrels per day within a few weeks and over 1 million BPD within six months – the most optimistic estimates I have heard to date.  With that being said, the Saudis appear to be getting ready to defend its market share.  Traders should watch tomorrow’s EIA data for possible short-term market direction and look for another drawdown of approximately 1.8 million barrels.  Watch API inventory data due out later this afternoon as well.

Short-term technical indicators remain much oversold and as I have mentioned in previous eViews, I recommend staying cautiously bullish – although over the past 30 days the bears have enjoyed control of the market.  For futures traders I would watch today’s price action – so far today it has been an inside day, this setup has the potential for a breakout and should be watched very carefully for short-term direction.  If you are unfamiliar with how to play inside day momentum breakouts, please give me a call so I can explain it to you.  Please call me for more details and to discuss some strategies.  Also be sure to check out my weekly energy market update posted on our website.

Sep ‘15 Crude Oil Daily Chart

Source: RJO Futures PRO

Sep ‘15 Crude Oil Daily Chart

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Interest Rates

U.S. Treasury Futures and the Yield Curve

CME Globex treasury futures have been climbing steadily higher since the last eView. As of this writing, September ‘15 2-year futures  remain off their highs and in relatively neutral territory, 5-years found resistance at their highs set back on July 9but look to have the potential to make their way higher and 10-years broke through resistance and appear to be heading higher into overbought territory. Durable goods, consumer confidence and manufacturing numbers have remained notably pale and the employment wage index costs number released last Friday have been the root of latest round of buying pressure for treasuries. 

The FED delivered expectations of a non-rate hike with their announcement after their latest FOMC meeting on July 29, bringing much emphasis to the October and December meetings for expectations of the first raise in interest rates in over six years. Analysts remain bearish on the front end of the curve with some even calling for a doubling in short-term yields by years end if we do in fact see a liftoff in the October or December meeting. All ends of the forward curve for both Eurodollar and Fed Funds futures continue to price in the current overnight lending rate of 0-25 basis points while treasuries continue their steady march higher.

The Bank of England releases their decision on interest rates on Thursday and then the Bank of Japan will follow suit on Friday while we wrap up Q2 earnings here in the States. On August 20, Greece will need to make a payment of 3.2 billion Euros to the ECB while negotiations continue on their bailout of more than 85 billion Euros from world lenders. Any disruptions here will further impact the dollar and in turn commodity prices, overall consumer confidence as well as the employment and inflation situation here in the states. All in all, the road has been rocky and full of rhythm but it looks more and more likely that we will see a move by the FED before the year is up.

Sep ‘15 10-Year T-Note Daily Chart

Source: RJO Futures PRO

Sep ‘15 10-Year T-Note Daily Chart

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Softs - Sugar

General Commodity Bearishness, Funds Selling into Downtrend Leave Bears in Control

Joe Nikruto

This week’s sugar commentary finds the October sugar futures trying to stabilize following two down days after a near “key reversal” on July 30.  The market posted a high of 11.64 shortly after the night open on the 30th and then came under pressure for the rest of the session followed by two days of price erosion which has driven October futures to a low, so far today, of 10.79. 

Wire services are highlighting the weakness in metals and energy and the general commodity bearishness engendered by the economic slowing in China.  More important than the need for “news” to fit price action is the fact that without a dramatic shift in the fundamental picture, funds can continue to press the short side. The Hightower Group points out that as of July 28, commodity trading funds were short about 70,000 contracts. While sizeable, there is still room for this position to grow.

One quick look at the chart below shows the downtrend is intact after October sugar futures short lived attempt at surmounting the 50-day moving average.  Even with bullish fundamentals getting traction on the wire services, October sugar futures have had difficulty rallying for more than a week or two at time. With those calling for a bottom in sugar pointing to forecasts for lower production and larger deficits next year the price action up front in the October contract shows the bears are in control and the chart action has to be respected.  Getting short here feels like selling into a ‘hole’ but last week’s attempt at reaching the 18-day moving average, which at the time came in at 11.83, was soundly rebuffed.  Sellers appear to not have the patience to wait for obvious technical levels to be tested to place new short positions.

Oct ’15 Sugar Daily Chart

Source: RJO Futures PRO

Oct ’15 Sugar Daily Chart

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Softs - Cotton

Cotton Approaching Key Technical Area

Erik Tatje

In my last eview article, I mentioned a noteworthy bullish trend channel that has been in development since the start of the year.  Price action tested the top of the trend channel toward the end of June and produced a sizable rejection from this area.  Traders now find the market at the lower extreme of the previously mentioned trend channel and thus, at a critical point in the chart.  The area from 6340 – 6400 in the December contract will likely be an area that cotton futures will need to “hold” if the market intends to continues its upward momentum.  A failure to hold this area on the chart could potentially set the stage for a sizable pullback, potentially targeting the 6200 level and perhaps even the January lows. 

The 20-day moving average has recently crossed below the 50-day, which could serve as confirmation of a bearish breakout of the channel should prices continue to fall.  If you’d like to talk further about potential strategies to implement in this market, or any other market, please contact me.

 

Dec ’15 Cotton Daily Chart

Source: RJO Futures PRO

Dec ’15 Cotton Daily Chart

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Softs - Cocoa

Has cocoa bottomed out?

Peter Mooses

Cocoa futures continue to be pressured by the outside markets. The reopening of the Greek stock market could have a negative effect on cocoa demand. With other softs heading down as well as the energies and metals, cocoa has followed suit. Commodities will look to the Chinese stock market for a push higher. The dollar and U.S. equities have stayed somewhat out of the equation over the past week.

September cocoa has support at 3150, today’s low is 3155. Today’s high is 3188; if the contract can trade back above 3200 – 3250, this would be a realistic target in the short-term.  Long-liquidating could still keep us trading in this range for now.

Sep ‘15 Cocoa Daily Chart

Source: RJO Futures PRO

Sep ‘15 Cocoa Daily Chart

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Softs - Coffee

September Coffee Under Pressure

Adam Tuiaana

The story remains the same for September coffee. A continued sell off on coffee prices is likely due to continued strength in the U.S. dollar, coupled by robust supply and weak global demand. A recent violation of the 12640 level has seen an expected correction, followed by a continued sell off down to the 12365 area. Recently we’ve seen another leg down for a new critical low of 11985, and traders should continue to follow the trend.  Look for a visit back down to the 120 level over the next couple of trading sessions.

There are severalstrategies that traders can apply in this situation. Please feel free to call or email for specific strategies.

Sep ’15 Coffee Daily Chart

Source: RJO Futures PRO

Sep ’15 Coffee Daily Chart

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Agriculture - Grains

Turnaround Tuesday for the Grains

Stephen Davis

The grain markets are higher as a turnaround Tuesday mentality takes effect similar to last week. Commodity markets in general are oversold and a bounce is likely. The U.S. dollar is lower while crude oil recovers.

There is not a lot of new news in the grain markets. The trade is trying to get its hands around possible changes to the current good growing conditions for the row crops. There is no scheduled extreme heat moving into the Midwest for several weeks. That is key as we approach the pollination period for soybeans.

A major concern to the market is the large fund long position in corn and soybeans. The million dollar question is, how long they can hold on to their long positions as the futures markets ebb and flow?

We are hearing French wheat is now offered below wheat in Russia where Kremlin officials are seeking proposals on new grain export duties. I was surprised when Mexico bought wheat from France last month. I should not have been. There is plenty of wheat in the world and it is cheaper than U.S. origin. Also U.S. railroads charge too much to move U.S. grain around North America.

The focus this week is that U.S. rains at best are going to hold U.S. crop potential stable although perhaps there will be a slight erosion in crop ratings next week. The lows in the grain markets may be in for now if the CRB index and equities and Chinese stocks trade higher.

Nov ’15 Soybean Daily Chart with 200-day Moving Average

Source: RJO Futures PRO

Nov ’15 Soybean Daily Chart with 200-day Moving Average

Dec ’15 Corn Daily Chart with 200-day Moving Average

Source: RJO Futures PRO

Dec ’15 Corn Daily Chart with 200-day Moving Average

 

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Agriculture - Livestock

Cattle Bends but Does Not Break, Bids Light

Jeff Gilfillan

We hit the 144 level in front month live cattle futures identified in the last eView as a target price. Many analysts believe seasonal product lows are in. Futures have been working into a discount to cash over and over but cash offers are holding steady. Spreads have been tightening and packers were under bought going into last Friday. Recent strength should see technical resistance around 149.25 level in October futures. RJO Market Insight pegs 145.775 in October as a key technical level for bulls.

Technically, the live cattle futures market still appear vulnerable on the daily, weekly and monthly charts.

I think the numbers will continue to build but cash prices need to remain firm enough along the chain through the spring to encourage the 1.5-3.0% anticipated build in the herd in 2016. Further consolidation and production management will be needed to keep the margins manageable while front end product remains relatively expensive.

Please feel free to contact me directly with questions.  

Live Cattle Monthly Chart

Source: GeckoSoftware.com

Live Cattle Monthly Chart

Weekly Feeder Cattle Futures

Source: GeckoSoftware.com

Weekly Feeder Cattle Futures

Long February 2016 / Short October 2015 Live Cattle Futures

Source: GeckoSoftware.com

Long February 2016 / Short October 2015 Live Cattle Futures

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