RJO Futures Website

February 16, 2016

Volume 10, Issue 4

Featured Article

Futures Trading Strategy Webinar

Wed, Feb. 17, 2016 at 4 p.m. CT

Register now!

Understand how professionals utilize sound trading strategies to guide them in and out of the markets. Learn what the key components of a trading strategy are and how you can learn to understand price action to determine precise entries, stops and profit targets.

In this webinar you will learn:

  • Key components of a strategy and why you need one
  • How technical analysis differs from trading strategy
  • Why price action is so important
  • How to implement a trading strategy  

 

2016 Outlook Insight Guide

Request now! 

RJO Futures has put together some of the best insight into where the markets have been and what might be ahead for 2016. These papers aren’t just a quick overview, they average 20-pages of in-depth content and graphs.

Papers include:

  • 2016 U.S. Economic Outlook
  • 2016 Grain Outlook
  • 2016 Energies Outlook
  • 2016 Metals Outlook

To top

Metals - Gold

Gold in the Midst of Powerful Uptrend

In the early morning trade after an extended holiday weekend, April gold has continued to give back some of its recent gains, currently down $26 and trading at $1214.0 an ounce. However, it has already rebounded $25 off the overnight lows of $1,191.5. It looks like the gold bulls are trying to protect the $1,200.0 an ounce handle after it fell from last week’s high of $1,263.9 back on February 11. Moreover, that was the same day Canada announced it sold nearly half of its gold reserves on the recent pump up. Therefore, the Canadians might be trying to tell us gold, at least in the short-term, is overbought. However, they also might be trying to tell us it’s going to be awfully hard for the shiny one to trade much higher than the February 11 high for some time to come.

If you look at a daily April gold chart, you’ll clearly see it’s in a powerful uptrend and above all, its major moving averages. I’d look to buy any decent pull back until the charts tell you otherwise. If it breaks the overnight low of $1,191.5, then look for a pull back or sell off to around $1,155.0.

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.

 

Apr ’16 Gold Daily Chart
Source: RJO Futures PRO

Gold Daily

To top

Metals - Silver

Silver Needs to Hold 1525

The long slumbering silver market finally made its move higher over the last two weeks, topping out at 1599.  The market pulled back 85 points from the high but with the market already 25 off the low, this is setting up to be a knee-jerk reaction instead of the new direction. Playing such an emotional market 1565 is new resistance, with 1600 the next level and 1625 as the number to beat for the overall bull trend to form and continue. 

After such a long slumber and failing just near the previous highs, this market could be setting up for another leg higher. The most convincing reason for another leg up is the price action on a day like today.  Going into the long weekend long metals seemed to make sense with whatever weakness was happening in outside markets.  Now that we’re back and the lows are rejected the bull case is still on the table.  However, with each hold and close above 1525 it creates stronger support and the new level to hold. For the overall bull to continue there needs to be a close above 1625, otherwise a failure at 1565/1600 could show this as a retracement in a longer-term bear market, with lower prices ahead. 

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

To top

Energies - Crude Oil

Volatile Day for Crude Oil

RJO Futures Senior Market Strategist Mike Sabo discusses the crude oil futures market. Crude oil is very volatile today. UAE talking about cutting production while the U.S. reported another decline in rig counts. Feel free to contact Mike here to leave a question or comment on his video.

To top

Energies - Natural Gas

Sub-$2.00 Natural Gas May Be Here to Stay

Natural gas prices are back under $2.00/mmbtu and front month contracts have once again broken to new lows. With a significant warming pattern expected for most of the U.S. through the next week, it appears winter is running out of time to put any significant demand on this commodity.  Though some may argue the short side of this market is far too “overcrowded” for any further significant downside, last week’s Commitment of Traders report suggests many shorts have covered their bets. Yet the market continues to slide. Despite six weaker sessions in a row, no technical indicator suggests the April contract is significantly oversold and I think there may certainly be further room on the downside.

While it is difficult to predict downside objectives in unchartered territory, a few levels that stand out to me from analyzing trade data through the early 2000’s are $1.920, $1.850 and $1.760. I believe there will be another small pop before these further downside levels have a chance of being traded. A reasonable rally would send this April contract back to the 2.045 – 2.015 range and bears may be very active in this area.

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.

 

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

Nat Gas Daily

To top

Softs - Sugar

Early Brazil Harvest to Help Fund Trader Press Short Side?

Joe Nikruto

This week’s comment on now prompt May sugar futures finds our market struggling to work its way back above the 18-day moving average. Fundamental cross currents impacting the May contract include increased  demand from China resulting in near-term supply deficit seen in the higher price March contract vs. the May contract and impending harvest by key producer Brazil.  Wire stories suggest the harvest in Brazil, which will be early this year, can go a long way toward alleviating the supply shortage.

Technically, the May sugar futures will have to post a close above the 18-day moving average pretty quick to stem the selling pressure of the commodity trading funds. In fact, the  Hightower Group mentioned in this morning’s sugar market comment that trend following funds had flipped from long to short roughly 12,000 contracts in the last reporting period. Funds don’t stay flat.  Moves back up to 14.03 and 15.13 will be required to shake the fund trader from the short side.  Without such a move higher it wouldn’t surprise me to see the funds continue to press the short side.

Fundamentally, with the impending harvest in Brazil it is hard to see where that rally would come from. Sugar could catch a bid from stabilizing energy markets and a resultant ‘risk on’ mind set from the speculative trading community.  Commodities have been beaten down and sugar may benefit from ‘relative strength’ type of comparisons making it more attractive for longer-term investors. While sugar traders will not be able to sleep at the wheel the bottom line is the trend in May sugar futures is down.  Aggressive traders can look to get short with futures or options and can look to 13.35 and 14.05 as relevant risk levels.

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.  

 

May '16 Sugar Daily Chart
Source: RJO Futures PRO

Sugar Daily

To top

Softs - Cotton

Cotton Catches a Bounce amidst China Planting Reduction

Cotton finally got the relief rally many participants were looking for today as news of a 6.5% reduction in planting acreage for one of China’s main cotton-producing regions brings fresh buying interest into the market.  Despite this relatively bullish fundamental development, the market still appears weak and the directional bias appears to remain negative. Having recently broke below key technical support at 60.00, cotton looks to have “opened the door” to fresh bearish forces.

Technically, the market remains weak with new lows in price confirmed by momentum indicators.  Today’s strength in price appears to be nothing more than a corrective rally in a bear market at this point. Initial Fibonacci retracement levels from the recent range suggest the 61.00 level may be a potential target for the recent strength, with additional resistance being seen at 61.50.  If today’s strength is to materialize into a larger reversal in trend, traders should key in on the January 16 swing high at 63.20.  A close above here will bring more optimism into this market and could set the stage for a potential longer-term reversal. 

If you’d like to discuss potential trading strategies in the cotton market, I encourage you to contact me directly at 866-397-8195 or etatje@rjofutures.com.

 

May ’16 Cotton Daily Chart
Source: RJO Futures PRO

Cotton Daily

To top

Softs - Cocoa

Cocoa Forming Bullish Move Post-Holiday Weekend

Peter Mooses

As we return from the holiday weekend with first notice day behind us, cocoa is forming a bullish move.

May cocoa has traded in a 52-point range so far today after the holiday weekend.  First notice day on the March contract took place Friday the 12th and we saw the May contract trade up at 2879 due to the rolls and repositioning of traders.

Looking at the chart, the technical trend seems to be forming a bullish move. An upside crossover of the 9-day moving average should add to this. During the first week of February we saw trading ranges of 100+ points. The chart alternated “red” and “green” days – mainly caused by outside markets or profit taking within cocoa.

Fundamentally, demand is still there for cocoa. Supply has been a concern for a few years now and nothing has changed for the growing regions. West Africa continues to have hot and dry conditions this year. The latest Ivory Coast port arrivals for February 8-14 show they are behind last year’s pace by about 7,000 tonnes – down almost 4% for the season.

It appears cocoa prices are trying to find a new range and consolidation. The ranges are trying to tighten as of late. If prices can continue to make higher lows and lower highs, the market should give us some direction soon. A close above 2870 could give prices that boost we need to reaffirm trading above 2800. Not that long ago we were trading above 3200 and it is realistic to say that cocoa prices could be back there since the supply and demand news continues to be bullish.

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.  

 

May '16 Cocoa Daily Chart
Source: RJO Futures PRO

Cocoa Daily

To top

Softs - Coffee

Coffee Poised for Selloff

Adam Tuiaana

Look for May coffee to continue the downward spiral on news of a record crop coming out of Brazil this harvest season. The Hightower Group reported “Brazil’s coop sees the crop coming along very well and even sees larger bean size this season.”

Failure was seen on February 5 to break above the highs from December. Specifically, May coffee was unable to reach the 12890 level. Fundamentally, traders are still on the bear side due to the lack of fresh bullish news. We’ll also point out that last month we saw a violation of the 11780 level from September, which is significant. Subsequent to this, we saw what I believe to be an upside correction in the way of this most recent rally. I now believe the correction is finished and a continuation of the downtrend is underway, which should make for a good opportunity for traders to step in the on the short side, yet again.

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.

 

May '16 Coffee Daily Chart
Source: RJO Futures PRO

Coffee Daily

To top

Agriculture - Grains

Weather Forecast a Concern as El Niño Comes to an End

Stephen Davis

We start this shortened trade week with a short covering rally in the grain complex. Friday’s Commitment of Traders report showed a large spec. funds net short position of 156 thousand contracts. This report shows spec. funds increased their short soybean positions by 40.000 contracts. Being short soybeans and corn is a crowded trade and these large fund short positions in soybeans and corn bring uncertainty to the markets. Be careful being short these markets at these levels. There can be large short covering rallies at any time.

What about our 2016 growing season? There may be two developments that may point to an elevated risk for the U.S. average corn yield to fall below trend yield. First and foremost, widely talked about is the weakening of the current El Niño event. We know what El Niño brings to agriculture in different parts of the world. We are not always sure of what follows El Niño. Many times it is La Niña and that can mean a hot and dry summer in the U.S. Corn Belt. Second, as reported by the private agricultural weather services, is the historical record for extremely wet conditions in the Midwest during November and December to be followed by a higher than average incidence of corn yields below trend yields. Total November and December precipitation in the Midwest in 2015 was record large. Perhaps some additional risk premium in corn and beans is justified at this time. Depending on the magnitude of acreage, a 2016 corn yield 5-10 times below trend can alter the balance sheet of corn from one of surplus to one requiring rationing.

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 Daily Corn Chart
Source: RJO Futures PRO

Corn Daily

 

Mar ’16 Soybean Daily Chart
Source: RJO Futures PRO 

Soybean Daily

To top

Agriculture - Livestock

Cash Soft, Dollar firm, Trend Sideways to Lower

Jeff Gilfillan

Cash cattle is trading around $3.00 over April futures but a little surprisingly softer than last week. My areas of heavy resistance (136-138 & 161-163) posted in my last blog on February 2 in front-month live and feeder cattle futures kept the bulls at bay and the technical failure at these levels leave the bears in charge at least for the short-term.

Key levels, as defined by RJO Market Insight's Dave Toth, in April 2016 live cattle futures are 132.975 on the upside and 127.15 on the downside. Last blog, I mentioned the path of least resistance was to the upside and that held true for two days but the charts failed at the 61.8% EOD retracement in Apr ‘16 LC at 136.65. The quants seem to have a consistent knack lately of breaking new highs/lows before renewing the intermediate trends (mostly bearish). That's my guess.

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 which were tested last week. 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.

If you wish to peel back my short-winded blog and analyze RJO's extensive in-house and independent insight, contact me directly for a live trial.

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.

 

Apr '16 Live Cattle Daily Chart
Source: Track'nTrade

Cattle Daily

 

Feeder Cattle Weekly Chart
Source: Track'nTrade

Feeder Cattle Weekly

 

Long Oct ‘16/ Short Jun ‘16 Live Cattle Futures
Source: Track'nTrade

Live Cattle Spread

To top

Currencies

No Shame in the Central Banking Game

John Caruso

Two weeks ago we saw the Bank of Japan implement the unthinkable, an NIRP, or Negative Interest Rate Policy. This was a desperate attempt to ease the tumultuous state of its economy and help bolster Japanese equity prices. It failed. The BOJ announced this plan on January 29, which created a sharp move higher (+835) in the Nikkei index, but was quickly followed by a more than 3,000 point decline in the following weeks. The Japanese yen also had an inverse reaction to the news, sky rocketing by 10% vs. the U.S. dollar index. With the Nikkei/yen carrying an inverse correlation, this was not the reaction the BOJ and Governor Kuroda intended. This has left the market pondering the idea of whether this is the beginning of the end for confidence in Central Banking intervention.

Our most recent Central Banking “champion” is our dear friend Mario Draghi of the ECB, who spoke in Brussels before European Parliaments Economic and Monetary Affairs Committee on Monday. Draghi acknowledged the challenging state of affairs that Eurozone banks face over the near-term, and stressed the ability to increase the ECB’s sovereign debt purchases if deemed necessary—AKA another one of his patented “we’re prepared to do whatever it takes” speeches.  Eurozone banks are faced with the challenge of narrowing spreads of the rate at which they borrow from the ECB and the rate at which they lend to the general public (borrowers).  The next step and “weapon” in the ECB’s diminishing arsenal would be to expand or extend their sovereign debt purchases at their March 10 meeting in Frankfurt. 

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.

To top

Interest Rates

Bonds Hit All Time Highs

Tarik Husseini

It’s been a rough stretch for bond bears who were anticipating rising yields as the Fed gradually raises interest rates.  Instead, bonds exploded to the upside as investors sought a safe haven from a looming global slowdown.  On February 11, with credit default swaps surging on European Banks and oil imploding, the March 30-year futures had the biggest one-day price rally since 2011. Traders are saying the spike in bonds was a perfect storm of lack of sellers, short covering and safe haven buying in the face of a global equity sell off. Another factor giving U.S. Treasuries a boost is the relatively attractive yields compared to other treasuries in the developed world.  In an environment of negative interest rates, the safety and return on U.S. treasuries looks good. 

Going forward, we have the Fed minutes released on Wednesday. This should give us some insight on where the Fed stands regarding further rate hikes throughout the year. A March hike has already been taken off the table, and with uncertainty regarding the global economy (China in particular), it is not a sure thing that the Fed will raise rates again this year.  On the March 30-year bond, look for moderate support at the 16316 level in the near-term and strong support at the consolidation breakout area of 15600-15700. 

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 Daily Chart
Source: WebOE

30-year Bond Daily

To top

Equities

S&P Commentary

Greg Perlin

S&P Commentary

We have seen a gap of rally to start the holiday shortened week in the wake of a positive overnight in Chinese stocks leaving the path of least resistance pointing upward. In order to extend the short covering action into a sustained uptrend, it probably requires a shift in focus to a condition where equities rally off weak data that in turns pushes back or eliminates U.S. rate hike expectations for the first half of 2016. Issues that restrain the upward tilt today are slack data from the Eurozone and suggestions from the Chinese Premier that his country faces great challenges.

As suggested already, the March S&P forged an upside gap rally which suggests bullish sentiment might be widespread. As of the February 9 Commitment of Traders futures and options report, the E-mini S&P is showing the non-commercial and non–reportable combined traders held a net long position of only 35,000 contracts. The market was getting down to a mostly liquidated condition. In conclusion, the S&P might be setting into a range bound by 1825 on the downside and by 1914 on the upside.

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

To top


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.

DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

© 2016 RJO Futures
222 South Riverside Plaza | Suite 1200 | Chicago, Illinois 60606
800.441.1616 | 312.373.5478

 To top