RJO Futures Website

September 1, 2015

Volume 9, Issue 18

Feature Article

Fed on Track for Rate Hike in September?

Fed on Track for Rate Hike in September?

CME Group Chief Economist Blu Putnam thinks Fed action is likely if Friday’s Unemployment report is strong. Highlights in his paper include:

  • Fed still on track to raise rates in September.
  • Probability of rate increase is only around 55 percent.
  • Fed unlikely to delay rate hike due to China, stock markets.
  • Sept 4 jobs report a critical data point for Fed.
  • Fed might rethink if less than 200,000 net new jobs created.

Currently, the central question for Fed Watchers is whether the economic troubles in China and the stock market downdraft of August 2015 will influence the Federal Reserve (Fed) to delay an increase in its target federal funds rate.  Full Article>>

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Metals - Gold

Gold Continues its Rally

In the early morning trade, October gold has extended its rally currently trading at $1142.0 and up $9 or roughly 1% for the day. Investors and traders are looking for a flight to safety play with the Sep '15 S&P E-mini down 44 points mostly due to raw material and energy companies leading the way affected by the Chinese slow down.

Let’s take a look at the daily October gold chart so we can analyze the technicals. Gold has pulled back from the overnight high, but if the shiny one can break the overnight highs of $1146.8, then look for a retest of the recent high of $1169.1 back on August 24. If gold could break through the August high, then look for this market to run and test the $1200.0 an ounce handle.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-536-8601 or ndegeorge@rjofutures.com.

 

Oct ’15 Gold Daily Chart
Source: RJO Futures PRO

Gold Daily

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Metals - Silver

Silver Sells Off to New Lows

While the previous two weeks were filled with the S&P and stock indices getting hammered, the silver market caved to the pressure and broke down to new lows with it.  Although the move wasn’t nearly as dramatic point-wise as with the S&P, silver still took the weakness opportunity to sell off to new lows of 1391.  This is the first time this market had a 13-handle on it since August of 2009, basically six years.  Pulling up a weekly chart, one can’t help but feel anything but bearish, but sometimes that’s when the surprise happens.

As for directional trading, the path of least resistance is down.  This market needs a close above the 1570 to have any type of hope of getting back to the 18-level, but the overhead pressure appears to be too heavy on it.  It’s a sentiment I’ve been saying for a while, but when you least expect it is when the surprises happen.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-536-8601 or mrataj@rjofutures.com.  

Silver Daily Continuation Chart
Source: RJO Futures PRO

Silver Daily Continuation

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Energies - Crude Oil

Crude Oil: A Bear Market No More

Since the last eView, October crude oil fell to new lows on August 24. In the next two sessions we saw the market consolidate (check out the inside days on August 25 and 26) only to see oil explode on the 27, 28 and the 31 moving from a low of $37.75 to a high of $49.33 in just six days!  The fundamentals have improved slightly in the oil market itself but China data remains very weak and our equities market looks weak as well.  June U.S. oil production fell 250 thousand barrels per day from the old estimate - clearly lower oil prices are curbing production levels.   We saw a fairly large draw in the oil stocks last week. Most traders were looking for a small build but we saw a draw of 5.45 million barrels instead– quite a large swing.  This draw certainly helped the bulls and in addition refinery capacity continues to run strong year over year. Last week was at 94.5% versus 93.5% a year ago. Total stocks stand at 450.761 million barrels. Traders should continue to pay close attention to the weekly EIA Reports as well as today’s inside day.  Look for short-term market direction as the market should break out in the next few days.

Short-term technical indicators have finally come off of being oversold in my opinion. I remain cautiously bullish after such a large rally to the upside, much of it caused by short covering.  The market has shown strong signs of a bottom in my opinion BUT I would proceed cautiously.   If you are unfamiliar with how to play inside day momentum breakouts, please give me a call so I can explain it to you. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or msabo@rjofutures.com. Also be sure to check out my weekly energy market update posted on our website.

 

Oct '15 Crude Oil Daily Chart
Source: RJO Futures PRO

Crude Daily

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Energies - Natural Gas

Natural Gas Holds Near Yearly Lows with Strong Support Defined

October natural gas has recently gotten very close to breaking into new yearly lows (currently the contract low is 2.638). Yesterday’s push to 2.643 and subsequent bounce marks the third failure in just two weeks to accomplish this breach. While the trend has certainly been bearish almost all year, the rock-solid support in this area is undeniable.

Not only has 2.64 recently proven to be a very strong level, but also the market appears to be having a hard time getting above 2.72. Given the current technical price action and the upcoming shift in demand for fall/winter, I believe that support will hold and the trade will break well above 2.72 shortly. While weather forecasts have called for an unseasonably warm September in most of the US, I expect trade has already factored in the weak demand tone all summer and this doesn’t change much. Longer term seasonal traders are likely looking at current prices as a great bargain to what may be expected this winter.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-741-0339 or aburton@rjofutures.com.

 

Oct ’15 Natural Gas Daily Chart
Source: RJO Futures PRO

Nat Gas Daily

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Softs - Sugar

Path of Least Resistance Lower for Now in Oct Sugar Futures

Joe Nikruto

This week’s comment finds October sugar futures caught up, like most commodities, in the narrative of declining economic growth in emerging markets not the least of which is highlighted by recent Chinese weakness or the dramatic drop in the Chinese stock market.  Moves by the Chinese authorities to stabilize the stock market after the sell-off and the resulting rally in U.S. stocks and energies emboldened sugar traders who also took the October futures contract for a ride.

Trend followers who apply more dynamic profit taking strategies were forced out of short positions in the October contract with the move above 10.85 taking the market to a recent high of 11.17.  This move left October futures short of the 50-day moving average, 11.37, and the market has since retreated lower to rest upon the 10- and 18-day moving averages which are huddled together at 10.69 and 10.66 respectively. This has once again left another ‘cup with handle’ formation on the chart and has many sugar market watchers wondering if the supply/demand situation has shifted enough to allow for a reversal of the yearlong downtrend. Threats of supply impact and the desire by some traders to catch the inevitable change in trend have fueled some notable rallies in the price for sugar during the last year.  None of these rallies have been able to hold over the 50-day moving average for more than a handful of days. 

Fundamentally, I am not sure there has been enough of a change in the supply situation or a change in the direction of the U.S. dollar that will allow for an extended rally.  Technically, we are yet again at the tipping point where the market could be bottoming or it is poised grind out another leg lower.  As long as the October sugar futures contract is below the 50-day moving average I assign greater odds to the latter over the former.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-453-4494 or jnikruto@fjofutures.com.  

 

Oct '15 Sugar Daily Chart
Source: RJO Futures PRO

Sugar Daily

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Softs - Cotton

Cotton Snaps Back Into Previous Trading Range

December cotton has shown, on several occasions now, to be respecting the 6700 technical level of resistance.  After a violent early-August rally, the market stalled at the 6700 level that served as previous resistance back in early May.  After failing to surpass this key technical pivot, the market played host to an equally violent move to the downside, ultimately bringing prices back within their previous trading range.  The recent consolidation around the 6295 figure comes as no surprise as the markets has respected this area in the past.  Given the current price of cotton, additional support offered by structural levels within this range could be anticipated around 6195 and 6120.  Below these figures, cotton appears vulnerable to another big move to the downside.  However, if the market can stabilize above the range-lows, then traders should anticipate further range-bound action on the chart as the near-term directional bias in cotton remains neutral. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-397-8195 or etatje@rjofutures.com.

 

Dec '15 Cotton Daily Chart
Source: RJO Futures Pro

Cotton Daily

 

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Softs - Cocoa

Bear Season?

Peter Mooses

Although December cocoa has seen some consolidation of late, we should see a breakout higher. Supply issues could push cocoa back over 3250. This year’s El Niño weather could be the worst since the late 90’s. Ivory Coast production for the 2015-16 seasons could see a big drop. So, as we have seen all year, supply and demand is the main factor in cocoa prices.

Other outside factors, mainly the global markets’ volatility, has put a ceiling on cocoa’s potential recently. Keep an eye on Ivory Coast and their upcoming presidential election which could add to the volatility until October.

Technically, a close above 3100 would fight the bears who are trying to take control of this market. A break and hold above 3135 should get us back on track to head over 3200.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or pmooses@rjofutures.com.  

 

Dec '15 Cocoa Daily Chart
Source: RJO Futures PRO

Cocoa Daily

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Softs - Coffee

December Coffee under Pressure

Adam Tuiaana

It’s all about overall weak demand due to a tumbling equities market, along with a questionable supply ahead. News of El Niño sparked a bit of buying, but we can clearly see on the chart below that last month’s rally and strength (likely based on said weather and short covering) has aggressively dissipated.  

Bullish forces are chalked up to unknown Brazilian supply numbers in the future, a drought in Vietnam and a weakening Brazilian currency.  Will these forces be enough to negate an extremely strong downtrend? Perhaps, but we will do what we always do, weigh on the side of the trend, down. In the daily chart of December coffee, we can notice three consistent violations of what should be strong support. Also, notice that prices have continued to make lower lows. Being a trend follower, we should continue to keep on the bear side of this trade.

There are several strategies that traders can apply in this situation. If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-536-8601 or atuiaana@rjofutures.com.  

 

Dec ’15 Coffee Daily Chart
Source: RJO Futures PRO

Coffee Daily Chart

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Agriculture - Grains

Grain Markets Fail to See a “Turn Around Tuesday”

Stephen Davis

The grain markets are mostly lower after yesterday’s recovery as crop conditions, weather forecasts and macro-economic events add pressure. World markets are sharply lower on Chinese data. I was thinking to myself yesterday that today would be a perfect Turn Around Tuesday with grain markets trying to turn around yesterday and crop conditions start to deteriorate every Monday night this time of the year. However, world stock markets are just too weak and crude oil is too weak for any turn around this morning in the grain markets.

Yesterday’s crop progress was good to excellent with corn down 1% to 68% and soybeans steady at 63%. Spring wheat was reported at 88% harvested, up from last week’s 75%. Wheat is up a nickel this morning and perhaps that can be a trade in these markets. Wheat harvest is now more than half done. The strong dollar really has held back our wheat exports as Egypt, who used to be the largest buyer of U.S. wheat, has been buying wheat from the Ukraine this week. In a recent Iraqi wheat tender, U.S. wheat was priced higher than Canadian wheat by about $18, and higher than Australian wheat by $33.

With China devaluing its currency; South Africa, Vietnam, Malaysia and Brazil following suit; and Australia talking recession, our great country is in a challenging environment to sell our grain.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7181 or sdavis@rjofutures.com.  Also be sure to check out my weekly grain market update posted on our website.

 

Wheat Weekly Continuation Chart
Source: RJO Futures PRO

Wheat Daily Continuation

Corn Weekly Continuation Chart
Source: RJO Futures PRO

Corn Daily Continuation

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Agriculture - Livestock

Neckline Does Not Hold, 130 Still in the Cards for Live Cattle

Global stock market weakness, heavy weights and poor technicals have contributed to new contract lows in live and feeder cattle futures. Cash markets are soft and thin. Live cattle offers are around 145-147 recently with a last reported trade at 146.

Technically the live cattle futures market still appears vulnerable on the daily, weekly and monthly charts. The head and shoulders on the weekly is still in play targeting $125 which also is just below the 50% fib on the weekly dating back to 2009/2010 lows.

Real long-term value will start around 130 in live cattle and 165 in feeders. I believe a washout area in live futures will test 135 and feeders in the 188-190 area.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-861-0382 or jgilfillan@rjofutures.com.   

 

Live Cattle Weekly Chart
Source: GeckoSoftware.com

Live Cattle Weekly

Weekly Feeder Cattle Futures
Source: GeckoSoftware.com

Feeder Cattle Weekly

Long February 2016/Short October 2015 Live Cattle Futures
Source: GeckoSoftware.com

Live Cattle Spread

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Currencies

Tumultuous Market Activity Places US FED and ECB in Focus

John Caruso

The August Jackson Hole Global Monetary Policy Meeting failed to produce anything truly substantial, with the ECB’s Mario Draghi and Fed Chairman Janet Yellen not in attendance.  Perhaps one of the most notable events was a speech delivered by Fed Vice Chairman Stanley Fischer.  Fischer remained optimistic on inflation levels meeting the Fed’s 2% target point, and would consider acting on interest rates in their September meeting.  The slightly hawkish tone from the Fed VP and further sluggish economic data from China has contributed to a further slide in global indices.  The S&P 500 for September traded -1.0% on Monday’s session and started out Tuesday -2.0%.  Confidence continues to erode globally and it will put the Fed and ECB in a very tight spot regarding monetary policy if the global sell-off persists. 

Traders and investors also have a very close watch on the global currency trade and Asian market developments.  With the Chinese moving to devalue the Yuan versus the USD two weeks ago, traders have widely speculated that economic growth and stability is far more severely understated than originally led on by the Chinese.  Beijing reported 7.0% GDP for the second quarter, but many experts believe actual growth was about half of the reported data.  China has also taken measures to ease up on bank lending restrictions, to also help spur-on economic growth and activity. 

The U.S. Dollar Index has failed to produce any further substantial gains that we’ve seen throughout 2015.  Perhaps the market is beginning to come to grips with reality, and the Federal Reserve will most likely pass on raising interest rates in their Sep. 16 meeting due to global economic turmoil in markets extending from Asia to Europe to the US.   Ahead of the Fed, Thursday, Sep. 3, we’ll hear from Mario Draghi and the ECB with their outlook on European economic stability and whether or not it’s appropriate to extend their €60 billion bond purchasing program.  It’s widely speculated the ECB will take on a dovish tone, despite Eurozone unemployment levels falling to a three-year low across the region.  Data released Tuesday by Eurostat proclaims the seasonally adjusted unemployment rate was 10.9% for July, moving below 11% for the first time since Feb 2012. 

The currency trade will most likely ebb and flow in the near-term from U.S. Dollar safe-haven buying to Euro and emerging market currency investing.  I still hold the opinion that from a long-term perspective, it’s best to look to the USD and Fed to lead the world higher in growth and economic stability barring the emergence of any other severe economic pitfalls. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or jcaruso@rjofutures.com.  Also be sure to check out my bi-monthly currency market update posted on our website.

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Equities

Is a Secondary Sell-Off in Equity Futures Coming?

I would expect that we will see a “retest” of the recent swing low (1831.00) in September E-mini S&P futures. So far the market is behaving exactly as I would have expected after the very sharp and deep sell-off that began on August 20. When you see a selloff of that degree and velocity, one should be aware that the market has the potential to snap back with an equally sharp recovery bounce…and that’s what we got. Now the equity markets are moving lower again, and in my opinion, likely to test last week’s lows.

Fears of China slowing and generally weaker global economic data have spooked the equity market bulls. People are acting surprised that the U.S. equity markets have corrected. The correction was long overdue. The writing was on the wall. China has been aggressively cutting rates all year and most central banks around the world have also been lowering rates…some have actually gone negative!

Now there is also a lot of damage to the charts, and not much in terms of support between current levels and last week’s lows. Volatility is not likely to just go away. Buying dips is no longer working and it is still too soon to say that this is “just a correction”.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-5354 or fcholly@rjofutures.com.  

 

Sep ’15 E-Mini S&P 500 Daily Chart
Source: RJO Futures PRO

E-Mini S&P Daily

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