RJO Futures Website

January 19, 2016

Volume 10, Issue 2

Featured Article

Upcoming RJO Futures Webinars

Trading Energy Futures

Wed, Jan. 20, 2016 at 4 p.m. CT

Register now!

Energy commodities are arguably the most political and tactical commodity in the global economy. The price of energy not only affects industries but affects every man, woman and child. Every time a light switch is turned on or motor vehicle is started, energy comes into play. Trading energy futures has long been the realm of the professional trader but these markets are available to everyone to capitalize on the long-term trends that regularly occur.

In this webinar we will look at the following:

  • Energy Commodities 101
  • Benefits of trading energy futures
  • Basic technical analysis and trading strategy applicable to these markets

 

Trading Metal Futures

Wed, Jan. 27, 2016 at 4 p.m. CT

Register now!

Since the dawn of time, precious and non-precious metals have been used to develop and to shape civilization. From being used to build infrastructure to defining wealth, they are an integral part of modern day society and an extremely important commodity. In this webinar we will delve into the details of what are metals and metal futures along with how you can capitalize on the high volatility in this asset class by trading them through some of the largest exchanges on the planet.

In this webinar we will look at the following:

  • Metals and metal futures basics
  • The benefits of trading this asset class
  • Technical analysis and trading strategy applicable to these markets

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Metals - Gold

Will Gold Become Safe Haven Again?

In the early morning trade, February gold is currently down $5 and giving back some of last week’s gains. Gold benefitted from a “risk off” tone last week, but showed slight gains on Friday while there was a big sell off in the S&P 500 and crude oil slipped under $30 a barrel for the first time in 12 years.

The biggest thing about gold nobody can quite figure out is will it continue to sell off due to deflation which the macroeconomic picture is currently painting, but possibly could already be priced in, or will gold become a safe haven again due to the 2016 global equity sell off?

If we take a look at the daily February gold chart, you’ll see gold broke above the symmetrical triangle pattern, rallied all the way up to $1108.8 on January 8 and is currently trading back around $1,086.2. It looks like gold could still rally up to its 200-day moving average, which is currently resting at $1,137.7 an ounce. However, before it does that, gold could easily stay in a tight trading range for a while. It could trade between the January 8 high of $1,108.8 and last Thursday’s low of $1,071.1.

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.

 

Feb '16 Gold Daily Chart
Source: RJO Futures PRO

Gold Daily

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Metals - Silver

Silver’s Next Move Still Unclear

When silver moved into the 14 handle, I was bearish this market.  After such an aggressive move lower, it’s hard to know when silver is done moving in a certain direction, until it stops.  Looking at the basic snapshot below going back to August you can see what silver does when it wants to move—it moves quickly and aggressively in the direction it’s headed.  However, since Nov ’15, March silver has consolidated between 1350 and 1450. 

In the first eView of the year I wrote that I have a longer-term bear view on this market.  However, over the past few years we’ve seen this market rally in the Feb months to make its yearly highs, only to trade lower for the remaining year.  This could still be in the cards as the consolidation range continues to be in play.

The wrench in the gears would be the FOMC raising rates in Dec ‘15.  What has been happening might not necessarily continue to happen now that there’s new material being brought to the stage.  The support and resistance numbers will remain in place until further notice but remember, when silver is ready to move, it moves.

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.  

 

Mar ’16 Silver Daily Chart
Source: RJO Futures PRO

Silver Daily

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Energies - Crude Oil

Crude Oil Hitting New Contract Lows

RJO Futures Senior Market Strategist Mike Sabo discusses energy futures markets. Crude oil hitting new contract lows. Feel free to contact Mike here to leave a question or comment on his video.

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Energies - Natural Gas

Natural Gas Rallies Continue to be Sold

Despite colder weather affecting most of the U.S. and a likely cold end to January, natural gas prices can’t seem to sustain any rallies. Last Thursday, the EIA confirmed an expectation of a -168 bcf drawdown in domestic natural gas supplies, yet the market failed to react to this bullish fundamental development. In fact, the March contract closed over 10 cents lower during that session. With continued frigid temperatures seen over the last week, I expect that natural gas inventories will be reported lower again this week. However, these drawdowns don’t seem to have much merit in supporting prices, as the big picture continues to remind traders that inventories are still far above the 5-year average.  

Even just this morning a 10+ cent rally in March natural gas was sold off. As of this writing the market is trading 9 cents below the session high and only 20 cents above the contract low of $1.91 (December 18, 2015). With fundamentals offering little support to the market, it appears the tendency for rallies to be sold will continue.

A few key resistance levels to watch exist around $2.20, $2.27 and $2.40. Breaks above $2.40 seem to be the sweet-spot for new sellers, but I wouldn’t advise holding short positions above the $2.50 mark. Until the market can achieve consecutive closes above the $2.50 level, the market will continue to have this very strong ceiling in place. While the $1.91 contract low may in fact be the seasonal bottom, the path of least resistance continues to be pointing lower until further notice.

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.

 

Mar '16 Natural Gas Daily Chart
Source: RJO Futures PRO

Nat Gas Daily

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Softs - Cotton

Higher U.S. Planting, Poor Chinese Data Keeps Prices on Defensive

Erik Tatje

Despite today’s strength, the cotton market remains on the defensive as more disappointing economic data out of China continues to raise concerns over demand.  Additionally, higher U.S. planting prospects will likely add to the negative sentiment to keep cotton prices on the defensive below the recent 65.23 peak.  The 20-period moving average has recently crossed below the 50-period moving average, thus producing a negative signal on the chart and likely adding to potential resistance around 63.00. This could serve as a significant level in the coming days.  The overall market sentiment in cotton will likely continue to be neutral to negative until price action can produce a close above the 65.23 level.  Recent lows around 61.15 – 61.30 could serve as potential support going forward; however, despite today’s rally, the bias appears to remain in favor of the bear campaign.  

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

 

Mar ’16 Cotton Daily Chart
Source: RJO Futures PRO

Cotton Daily

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Softs - Cocoa

Supply and Demand

Peter Mooses

The facts are finally taking over the cocoa market again. Higher demand and supply concerns equal a reaffirmed bullish trend. Negative outside factors—mainly China and currency volatility—added to the liquation over the past two weeks but cocoa is now oversold and ready for a bounce back. Between European grindings and the latest Commitment of Traders - buyers have been tempted back into the market. The market is holding above 2900, finding support around 2915. A break above 2955 should push this reversal above 3010. As cocoa has shown us in the past, one trader’s profit taking is another trader’s buying opportunity.

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.  

 

Mar ’16 Cocoa Daily Chart
Source: RJO Futures PRO

Cocoa Daily

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Softs - Coffee

Coffee Under Pressure

Adam Tuiaana

March coffee continues to plunge to lows not seen since January of 2014, in part due to lack of fresh global demand, large supply and weak Brazilian currency. Subsequent to my last report, we have violated the critical low of 11530, set from November 13, and promptly have seen some aggressive follow through selling. It’s likely we will see coffee prices consolidate and possibly even rally and correct up to the 118 level before a continued selloff. Traders should prepare to initiate short positions on a rally to 118, as I believe a continuation of the downtrend will then be underway. Always keep in mind: the trend is your friend.

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. 

 

Mar '16 Coffee Daily Chart
Source: RJO Futures PRO

Coffee Daily

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Agriculture - Grains

Grains Start Week In Positive Territory

Stephen Davis

CME grain prices are starting the week in good positive territory on a broad rally in world equity markets following good news from China regarding 2015 GDP growth rate. China announced its 2015 GDP rate was 6.9%, the lowest annual growth rate in two decades. However, the hope is the government will further cut its lending rate and/or offer new fiscal stimulus to spur faster future GDP growth. This thinking has caused a broad rally in world equity markets and dragged commodities higher on a short covering rally.

March soybeans have been able to rise above their 100-day moving average at $881.25 and it will be important in the short-term that it stays above this level. March corn may test its 50-day moving average at $3.79 at some point in the near future. Fundamentally, it’s difficult to justify a rise above $3.80 spot CME corn prices without adverse weather in South America or our great country, USA.

The South American weather forecast has less rain than what was indicated late last week for the upcoming weekend for Southern Brazil and Northern Argentina. However, there are clear indications the recent heat/dryness across Southern Brazil won’t last with the 8- to 15-day period calling for renewed rainfall. Our confidence in a more normal rainfall profile for Argentina and Brazil in late January and February is increasing. This is the key for Brazil and Argentina soy crops going forward. So far, the sunshine and warmth has not produced any undue stress on the Argentine or Brazilian crops.

The corn futures gapped higher overnight. This price gap was formed when the overnight market opened above Friday’s high price of 3.634. If this gap holds throughout the day, we might see speculative traders buy futures into the close in hopes this gap might be a signal of a gap and go low. Call me to talk about gaps on futures charts. Natural gas, sugar and cattle all come to mind in the near past showing gaps in these markets.

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.

 

Mar ’16 Corn Daily Chart
Source: RJO Futures PRO

Corn Daily

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Agriculture - Livestock

Large Discount of Futures to Cash and Short Covering Supporting Live Cattle Futures

Jeff Gilfillan

Cash cattle is trading more than $5 over near month futures and $17 over August live cattle futures. Restaurant demand and cash markets are performing well as consumers’ savings at the pump should turn into expenditures for football parties and Spring Break plans. Zero degree temperatures in the Midwest will only keep beef demand up.

The futures market's discount reflects oversold spec positions, a strong U.S. dollar and a very vulnerable equity market. The trade is also pricing increases in production and anticipating weaker than expected exports.

I believe the producers of beef understand there is real demand for beef as well as healthy margins on the retail side. While production needs to increase to work through the front end supply, prices should at least remain as firm as feeders and wide cash spreads and volatility should continue while the USD and U.S. equity markets react to China's attempted transformation into the free market world.

I expect the rubber band markets to continue in both the feeder and live cattle futures. There are technical gaps to fill produced during summer 2015 to the upside and a few more recent gaps just under the markets. The current range in both feeders and live cattle held for about two years from 2011 into 2013 and may very well hold now as the market deals with heavy weights and stable demand.

Short-term trends favor the short side and rewards patience. April live cattle futures should see intermediate resistance at 136-138 area and March feeders should get heavy around 161-163.

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. You may also follow me on Twitter @RJOJeffGil.

 

Live Cattle Monthly Chart
Source: GeckoSoftware.com

Live Cattle Monthly

 

Feeder Cattle Monthly Chart
Source: GeckoSoftware.com

Feeder Cattle Monthly

 

Long Apr '16/Short Mar '16 Feeder Cattle Futures
Source: GeckoSoftware.com

Feeder Cattle Spread

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Interest Rates

Bonds Away!

Tarik Husseini

U.S. government bonds remain buoyant following the long weekend as fears of a global slowdown persist. Leading the charge is China, whose GDP came in at 6.9%, the slowest in 25 years. China’s stock market has been hammered as investors lose confidence in the government’s handling of the Yuan devaluation and a failed attempt at implementing market circuit breakers. The Chinese stock market is down 42% from its 52-week high. The uncertainty in how China will handle its systemic problems has caused volatility to skyrocket, which in turn has a dampening effect on traders’ willingness to take on risk. This has translated into a flight to quality in bonds during the volatility, as they are considered a safe haven. 

Adding to slowdown concerns is the continued rout in crude oil. Not only did the EIA release a report overnight that the world is awash in crude, but it lowered the global demand outlook. Couple that with Iranian oil hitting the market soon along with prospects for a crude rebound looking grim. These circumstances have prompted rumors the Fed does not have room to continue raising rates any time soon. It fact, a major investment bank is predicting the Fed will hold off on raising rates again until June. 

Fundamentals argue for continued strength in bonds. Technicals are also cautiously bullish. On a continuous chart, the 30-year bond is testing the upper trend line of a multi-quarter consolidation in an overall uptrend. It is yet to be seen whether or not a breakout will occur, but it’s worth keeping an eye on.   

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-672-0664 or thusseini@rjofutures.com

 

30-year Bond Weekly Continuation Chart
Source: RJO Futures PRO

30-year Bond Weekly Continuation

 

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Equities

E-Mini S&P in Review

Greg Perlin

In order to throw off the downtrend pattern in crude oil, a recovery is needed in the March crude contract above a downtrend channel resistance line of $31.12. This is something the equity market participants have been watching closely as proxy for growth throughout the world.  However, many are suggesting the action today is a bounce in a bear market and not the beginning of a pattern of gains.  In fact, the trade has discounted the 6.8% growth rate in China and instead has embraced the idea suggestion that the world is posed to drown in a sea of crude oil supply.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or gperlin@rjofutures.com.

 

Mar '16 E-mini S&P Daily Chart
Source: RJO Futures PRO

E-Mini S&P Daily

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This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

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