RJO Futures Website

March 15, 2016

Volume 10, Issue 6

Featured Article

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

2016 Outlook Insights

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Metals - Gold

Demand Slows with Recent News out of India

In the early morning trade, April gold has continued its short-term sell off from the recent highs and is currently trading at $1233.8 an ounce. The bears have gained control again at least in the short-term due to renewed global slowing fears. A stronger U.S. dollar and weakness in crude oil is enough negative information to scare some more bulls out of the gold market. Also, there have been reports out of India that demand has slowed due to a strike by jewelers, and don’t forget they’re the biggest users or importers of the shiny metal.

If we take a look at the daily April gold chart, you’ll see that it broke the short-term uptrend support yesterday and now is trying to hold onto the $1225.0 level, but if this support level breaks, look for a sell off to $1200.0-$1175.0 an ounce.

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

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Metals - Silver

Market Bulls Still Present in Silver

We’re back having a similar conversation in the silver market after decimating the 1525 support level and selling off to 1461 in a 46-point one-day move before rallying back up to 1500 in four sessions! It was almost as intense as watching the current political climate (is silver a harbinger of it?). Within the last eight sessions the market failed at 1584 three times and also bounced at the 1525 level four times, unable to close above or below those levels. Without being too technical, this is the new range. 

In my previous eViews, I’ve been fairly adamant silver would be making its yearly highs in February and March before making new contract lows. The rejection of the 1461 low was the best case made by the market that the bull is still around. On top of that, the fact it’s been holding 1525 continues to make the market bullish. The weakest case is the fact this market has been 15.5 points from the high made back in the beginning of February. With the market trading near 1525 if we get a close below there, the bear might be stronger.

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.  

 

May ’16 Silver Daily Chart
Source: RJO Futures PRO

Silver Daily

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Energies - Crude Oil

Crude Oil Pulls Back from the Highs

RJO Futures Senior Market Strategist Mike Sabo discusses the crude oil futures markets. Crude oil pulling back, well off the highs. Looking ahead to API report tonight. Feel free to contact Mike here to leave a question or comment on his video.

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Energies - Natural Gas

Bull-Trap or Reversal?

After posting a near perfect double bottom earlier in the month, April natural gas has finally shown traders it has some fight in it. When prices collapsed below the $2.00/mmbtu in the second half of February, it seemed the market was in a free-fall and largely abandoned by the frustrated bulls. Now it’s mid-March and the market has posted gains in eight of the last eight trading sessions. Considering the most recent Commitment of Trader’s report suggested as of early last week, the short side of this market was still building, it is appropriate to assume short-covering has driven a large part of this most recent move.

While it is impressive to see natural gas recover over +15% of its value in less than two weeks, I don’t believe this market is out of bear territory quite yet. With normal to above-normal U.S. temperatures expected through the end of the month, this rally may have already gone a bit too far for its own good. I assume there is a sizable group of trend-following traders who had interest in being short this market but struggled to find a reasonable entry. This rally may be just the right setup for this particular group to pull the trigger and hop on the band-wagon.

Technically speaking, the market will need to break and hold above $2.00/mmbtu to signal a true bullish reversal. I do believe there is potential for the market to test this area; I don’t see that move being sustainable. Fresh sellers may ultimately be targeting a retest of the double bottom at $1.61, but I see preliminary targets at the 1.77, 1.72 and 1.65 levels. Though it may seem unreasonable for natural gas to slide further than this $1.60 area, recent price action and the long-term trend suggests it’s certainly possible.

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

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Softs - Cotton

Corrective Rally May Need Outside Support to Surpass 60.00

Erik Tatje

Cotton has received some added buying interest as recent U.S. Export data included Brazil for the first time in several years. Despite optimism for increased Brazilian demand, the market still remains in a well-defined bear trend, punctuated by lower highs and lower lows on the daily chart. The recent strength in cotton has put the 58.30 level in the spotlight and the market may see additional selling interest around this structural level of resistance.  Above here, the 60.00 round figure will likely serve as significant resistance and could potentially derail the near-term positive momentum in the event that the market can rally up to this round number. The 50-day simple moving average also coincides with the pivot at 60.00, adding an additional element of resistance that price will need to overcome. Despite the recent corrective rally in cotton, the outlook remains bearish with a correction possible up to the 60.00 – 60.40 area before a significant breach in the underlying bearish structure is confirmed. 

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

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Softs - Cocoa

Technical Trade Taking Control of Cocoa Futures

Peter Mooses

3075 continues to hold as major resistance for the May cocoa contract. Looking at the chart, the swing higher has continued perfectly and pullbacks have created buying opportunities. Any dip has led to the next move higher. Gradually, this trade has looked almost too good to be true for the bulls. The area we are trading at now will decide where we head next. 3100 will be the next target – above that the 200-day moving average. The 9-day moving average has guided us all the way up, will the 200-day be our ceiling or catapult us to 3200 without looking back?          

Fundamentally, not much has changed. Anytime a little nice weather hits growing regions we see slight pullbacks or down days. That weakness has shown to be temporary. West Africa could have calm weather over the next couple weeks which could cause some profit taking of spec traders for the short-term. The overall trend should not be changed by this. Uncertainty in Ivory Coast and safety concerns in that growing region may have added to the price bump up as well this week. Keep an eye on these stories because any threatening behavior by this area of the world can lead to supply issues temporarily, especially if their government gets involved.

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

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Softs - Coffee

May Coffee Continues its Volatility

Adam Tuiaana

May coffee has been extremely volatile and positive for the last 9 out of 10 trading sessions. This is likely due to some near-term tight supplies and a rallying equities market to support demand. However, we cannot ignore the forecast for a very large Brazilian crop ahead. While traders will wrestle with the fundamentals, on the technical side, we have seen a break above the 12595 area, which is positive. In addition, let’s take note that the long-term down trend line (measured from the October highs down to the highs of February) has in fact been broken to the upside, and has also seen some follow-through buying. The bull camp will fight to keep support at the 126 area and we shall see whether or not this will be the case. However, traders should consider with such volatile and positive price action over the last week, one must consider a large correction back down is due.

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

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Agriculture - Grains

Grain Markets Looking Ahead to March 31 Crop Report

Stephen Davis

Corn left a chart gap on the rally Monday that the market will not leave. Corn is perhaps the best market at going back and filling these gaps. When fund short covering is over, the rallies are over. The rallies from the lows in cotton, soybeans, wheat, corn and many other commodities have all been primarily the result of very crowded trades. Bearish fundamentals have not changed and are unlikely to change that much. Can we have rallies in bear markets? Absolutely. In fact, the million dollar question in these grain markets is how long can these funds stay short in front of a very important North American growing season?

I do an agricultural video each week and I mention that during the last two summers, the average rally has been 60 to 80 cents in corn and soybeans. That seems like nothing. I can remember back in the day when soybeans could go up or down 70 cents in one day. Now that is a whole summer’s worth of a move!

If it keeps raining and staying wet this spring, it will be bullish corn and bearish the soybean market. More rain and delayed planting would bring about more soybean acres and we do not need more soybean acres. Many grain analysts will tell you $9.00 November soybeans should look good this fall. Once this short covering in soybeans runs its course the soy rally should stop.

Many veteran grain analysts will tell you when Arkansas is wet in March, the Corn Belt is wet. It is wet in Arkansas this March. It is wet in Louisiana this spring as well. We shall see what this all means. Two weeks from this Thursday is a very important and high risk Acreage and Grain Stocks report. We can see some continued short covering going into this high risk report.

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.

 

May ’16 Soybean Daily Chart
Source: RJO Futures PRO

Soybean Daily

 

May ’16 Corn Daily Chart
Source: RJO Futures PRO

Corn Daily

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Agriculture - Livestock

Cash Trending Higher, USD lower

Jeff Gilfillan

Fed cattle continues to trend higher. A lower U.S. dollar, overall firm tone in commodities, a benign large spec net long and an upwardly trending cash trade are supporting live cattle futures. The charts appear poised to test 144-145 area in April (front month) and 132-133 area in June. The spreads are firm and packers may be under bought going into an earlier holiday spring week. 

Dave Toth of RJO Market Insight identified the 138 area on Friday as our new support level with 134.80 serving as our new key risk parameter in April LC. Looking further back on a daily front month, continuation chart there is a gap to fill way up at 158. Keep in mind the USD was not far off of current price levels the last time LC traded at 158.

While the charts appear to be showing some life, keep in mind the short-term, quantitative type funds have a tendency to push prices to the path of least resistance, often violating new highs and lows before reversing swiftly. So many of the recent moves in commodities are still largely based on short covering. Nevertheless, the mentality that high prices maybe on the horizon often feeds into higher prices.

If you would like direct access to RJO's extensive in-house and independent insight, contact me directly for a live 2-week 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

Live 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

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Currencies

Tomorrow's Fed Announcement to be Major Factor for Currencies

John Caruso

RJO Futures Senior Market Strategist John Caruso discusses the currency futures markets. Negative outlook for Japan economy. Fed meeting tomorrow will be major factor for the currencies. Feel free to contact John here to leave a question or comment on his video.

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Interest Rates

Will Bonds Continue to Soften?

Tarik Husseini

Today bonds got a bounce on weaker crude and equity markets.  They have been on a precipitous slide for the last month, making lower highs and lower lows, since making a contract high on Feb 11.  Volatility has subsided and the markets have calmed since weakening Chinese market rattled traders worldwide. ECB moves to lower rates and beef up QE has also added some fuel to the equity rally, which further deflates any flight to quality bid in bonds. The two-day FOMC meeting kicks off today, which should give the markets some forward guidance on the Fed’s course of action regarding rates.  As of today, the CME Group FedWatch indicator shows the probability of a March rate hike at 0%. The probability of a rate hike in June rose to 43%, in September to 61% and in December to 75%. These probabilities have increased since the last report I wrote on March 1. This seems logical since the employment situation continues to strengthen and global anxiety dissipates. 

The technical picture tilts to the bearish side as bonds make lower highs and lower lows since mid-February. For Fibonacci fans, the 61.8% retracement of Dec 30-Feb 11 rally on a continuous 30-year bond chart comes in at 15920, which also coincides with a very significant bullish consolidation breakout that occurred back in mid to late January. Thus, that can be construed as a solid support area. Below that, the 155-156 level in the June bond will be formidable support and a target for the current slide in the 30-year bond, barring any renewed global turmoil.

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 Continuation Chart
Source: RJO Futures PRO

30-year Bond Daily

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Equities

S&P in Review

Greg Perlin

The June S&P E-mini comes into the early U.S. morning hours under pressure and has fallen back below the potentially important 2000 level. Early pressure came from slackening Bank of Japan economic views and rising concern of a British exit following a poll that puts an exit 2 points above those wanting to remain in the EU. There might also be some long exodus or profit taking ahead of tomorrow’s FOMC meeting decision and statement. While the Fed is expected to stay the current course with monetary policy, ideas that recent improvements in U.S. economic data could put the Fed back on an interest rate hike track by June which is a fresh negative for stocks.  With weakness in WTI crude this morning, we can’t rule out even more widespread profit taking following the impressive four week rally of the February lows.

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.

 

Jun ’16 E-mini S&P Daily Chart
Source: RJO Futures PRO

E-Mini S&P Daily

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Why Are Equities Moving In Tandem With Oil?

Outlooks on Oil-Equity Correlations, U.S./Euro Zone Rates

Erik Norland, CME Group

The S&P 500® has been 70% correlated with day-to-day movements in West Texas Intermediate Crude Oil (WTI) so far this year. This is the highest correlation over any rolling 30-day period since 2012 (Figure 1). The one-year rolling correlation has risen sharply to its highest level since 2013.

Why are equities moving in tandem with oil?

  • Equities are showing a high positive correlation with oil
  • The unusual trend is being driven largely by financial stocks
  • Banks have been major lenders to the beleaguered oil sector
  • Falling crude oil prices raise fears of loan defaults and vice versa
  • Oil will continue to drive bank stocks, but high correlation not sustainable

 

To read the full article, visit CMEGroup.com

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