RJO Futures Website

April 12, 2016

Volume 10, Issue 8

Featured Article

Upcoming Webinars

Trading Index Futures

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Wednesday, April 13 at 7 p.m. CT

In this session you will learn:

  • Keys to the index futures markets
  • Benefits of trading index futures
  • What you should know about trading these instruments
  • Using the gap trade strategy to build consistency

 

Trading Energy Futures

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Wednesday, April 20 at 7 p.m. CT

In this session you will learn:

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

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Metals - Gold

Gold Holding On to Gains after Downward Move in USD

In the morning trade, June gold is trying to hold onto yesterday’s gains mostly due to the downward move in the U.S. dollar and then again overnight. The U.S. dollar has not seen prices this low since August of 2015. Some investors are pointing to gains in holding on precious metal derivatives. While gold holdings have only rose by 15.421 ounces overnight, silver holdings have risen by 2.42 million ounces which is the highest level seen since December of 2014. June gold is just around $30 off its yearly high, while overnight May silver has broken into 2016 highs of $16.21 an ounce overnight.

If we take a quick look at the daily June gold chart, you’ll clearly see it’s trading above all its major moving averages and prone to test its yearly high of $1287.8 made back on March 11. If we break that level, look for momentum to bring the gold market up to $1325.0-$1350.0.

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.

 

Jun ’16 Gold Daily Chart
Source: RJO Futures PRO

Gold Daily

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Metals - Silver

Silver Makes Monthly High

Eli Tesfaye

Commodity markets are firm across the board even with modest strength in the U.S. dollar. Gold is modestly weak while silver is holding its overnight gains again and more importantly, making a monthly high today in the May futures contract. Technical damage to the dollar is giving the metals across the board needed lift.

Overall, momentum is to the upside. Given the fact it’s holding above critical level of 16.00 will probably foster to drive the price higher. Given the current price action, weakness will probably be bought rather than sold. The next upside target will probably be around 16.40. Any price action range between 15.50 and 16.00 will probably be considered a value zone.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or etesfaye@rjofutures.com.

 

May ’16 Silver Daily Chart
Source: RJO Futures PRO

Silver Daily

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Energies - Natural Gas

Natural Gas Enters Spring with Strong Volatility

Natural gas futures made an excellent recovery through the month of March. Now almost half way into April, traders appear to be questioning whether this recovery was a genuine trend change or just a temporary bounce in an established bear market. Additionally, the month of April is typically quiet for natural gas demand, but this year’s spring is off to quite a cool start and some suggest it is prolonging the need for residential heating. In reality, whatever demand is carrying over from the winter is evidently failing to outpace production. Last week’s EIA report showed a slightly larger than expected injection of 12 bcf, pushing total storage to 2,480 bcf, 54.4% above the 5-year average. New forecasts are now suggesting weather for the major U.S. will dramatically improve over the next two weeks, putting temperatures ‘above normal’. If this expected weather shift does materialize, I believe it will aid the bear camp in regaining control of this market.

Despite this recent volatility, the May natural gas contract has largely avoided holding above the critical $2.00 mark, only settling above that price twice since mid-February. Today’s strength appears to be mostly technical as the weekly open Sunday evening presented a major four cent gap lower to traders.  Once 1.991 is traded, this gap will be successfully filled and the chart pattern will once again be healthy. Some may wish to sell this rally and utilize the monthly high of 2.074 for risk control. The two critical downside objectives that must break before the contract low of 1.731 can be revisited are 1.892 and 1.837.

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.

 

May ’16 Natural Gas Daily Chart
Source: RJO Futures PRO

Natural Gas Daily

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Softs - Sugar

July Sugar: How Low Can They Go?

Joe Nikruto

This week’s eView comment on the now prompt July sugar futures contract finds a market in full retreat from recent highs. What I thought might be good initial support in the May futures contract hasn’t held up at all. The May sugar futures contract has knifed down to almost 14.00 with seemingly nothing to stand in the way. The previously rock solid bullish fundamental story has begun to erode with timely rains in India increasing chances of good production there. Also, robust harvest and processing activity in Brazil should contribute to further reductions in the year over year production deficit expected globally. This new fundamental outlook has conspired with what I suspect is selling from the commercial trader near the highs to overwhelm the recently long fund trader. Interestingly, the COT score card shows the fund trader total long position has dropped with the price of May sugar futures but not as much as we might expect. This leaves both the May and July contracts susceptible to further price declines if a rebound doesn’t arrive quickly. The July contract hasn’t chopped into the support area left over from last year’s sideways price action nearly as much as the May contract has. It is possible that support may be found in the area between 14.50 and 13.50, a solid congestion area on the chart. But with the commodity trading funds now underwater on positions entered in the last month, that support may be hard to find.

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.  

 

Jul '16 Sugar Daily Chart
Source: RJO Futures PRO

Sugar Daily

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Softs - Cotton

Recent Strength Hinting at Potential Trend Reversal

Erik Tatje

Despite several months of downside pressure, the cotton market finally appears to have stabilized and an argument can now be made for a potential reversal in trend for the soft commodity.  Recent strength in the May contract produced a rally (and close) above the previously mentioned 60.00 figure on the chart. This comes after a sizable rally pushed the RSI over the bear market oversold reading of 60, and is now threatening a transition in the RSI momentum indicator.

Additionally, the 20-period simple moving average is currently in the process of producing a positive crossover above the 50-period SMA, indicating a potential “buy” signal from a technical standpoint.  Interestingly enough, this crossover is taking place within a significant area of potential support seen from 58.30 - 58.70. This will likely be a significant level of support and will likely need to support any subsequent weakness in price action if cotton is indeed going to shift directionally.

With that being said, cotton is fast approaching a significant structure area from 61.15 – 61.30, which could prove to be near-term resistance. Traders should continue to monitor these two key areas of S/R for clues as to whether or not the cotton market can indeed produce a shift in trend. A confirmed breakout above 61.30 could set the stage for a move back up to 63.00 and a likely shift in sentiment.

If you’d like to discuss potential trading strategies in the cotton market ahead of the upcoming USDA report, 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

Cocoa Prices Remain Tame

Hector Galvan

As we begin to move into the second quarter of the year, I am reminded of just how apprehensive I was to consider cocoa as anything less than the bull market of 2016. Yet, to date, all of the motives we used to justify the mindset of the raging bull market have not materialized. Lack of dry weather, less demand and sufficient arrivals to port have all played a role in keeping the price of cocoa tame. So far, West Africa has had the luck of good rainfall in Southwestern Ivory Coast and Eastern Ghana. I imagine if the regular rain showers continue and we do not see an excess of rain, this should remain a good sign. 

Furthermore, demand has also clouded one’s picture of the market.  At one time, the idea of increased demand in 2016 had many believing the overall cocoa deficit would increase and push prices higher.  Yet, again we found measured grindings in all three parts of the world did not highlight any particular change.

Cocoa deliveries to Port have actually dwindled in the last couple of months. This would usually aid in spiking the value of the contract, but because the demand has waned, both have balance one another out. The European grind out tomorrow should show an increase of one to two percent. It would be nice to see a larger percentage jump, but with the recent terror attacks in Europe, it is difficult to see anything more than a probable slowdown in consumption. I would urge the trade to consider the likelihood of a test of 3000 in the July contract in the near future. One could argue that should the price of cocoa push and close above 3000, we may see a test of levels not seen since mid-March when the market touched 3150.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 877-963-6484 or hgalvan@rjofutures.com.

 

Jul '16 Cocoa Daily Chart
Source: RJO Futures PRO

Cocoa Daily

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Softs - Coffee

May Coffee Rebounds from April Lows

Adam Tuiaana

Since violating the 12405 low from March 16, May coffee has seen extreme weakness due to a major short covering rally. However, we’re now witnessing a strong rebound from April lows likely due to improved demand and larger than expected Brazilian exports. Also, traders should note the Brazilian currency is also gaining some strength against the U.S. dollar which should also help to lend support to coffee prices. Even so, as we continue to see a strong equities market, with the S&P 500 reaching highs not visited since December of last year, the ripple effect may be making its way toward coffee demand.

It will take continued strong demand to support a potential reversal up in coffee prices, and a tight supply will be needed to push coffee prices out of the slump they’ve been in since fourth quarter of last year. The bull camp will look to re-test the 130 area and we shall see whether or not we are able to hold support up at that level. 

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

Brazilian Political News puts Damper on the Grains

Stephen Davis

The grain markets are higher ahead of the April WASDE report at 11 a.m. today. Corn, soybean, wheat and soybean meal are up impressive with soybean oil unchanged. Soybeans and soy meal are leading the charge higher.

The ongoing impeachment process of Brazilian President Dilma has rallied the real to 3.49 versus the U.S. dollar which in turn has helped invigorate fresh fund demand for the soy complex. A special congressional committee voted to recommend the start of the impeachment process. The grains followed the lead of soy ahead of the USDA report today.

There is widespread debate on why the U.S. soybean market is rallying against its bearish supply fundamentals. Everyone seems to have some angle on the rally with most citing the Brazilian political situation and the rising real as the rational. Others cite the modest reduction in Brazilian production, however it seems what Brazil has lost, Argentina has gained. Others will argue sugar has sold off to a six-week low yesterday and coffee has been backing and filling, not showing any signs of a rally. Both are key Brazilian commodities and they have not reacted to the Brazilian impeachment of Dilma or the rise in the value of the real vs. the U.S. dollar. Certainly chart patterns play a role and the seasonal tendency to not be short ahead of the North American growing seasons is key. Funds were short soybeans and now are long and this just breeds on itself. Funds have poured into the soy complex and the recent breaking of key chart based resistance has only encouraged fresh fund investment. Today is the third day of fund buying and normally funds enter and exit in three-day increments. The crop report today is more likely to be supportive to a soy rally than negative. By late week however, reports of rapid U.S. planting may dampen the bullish enthusiasm.

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 Corn Daily Chart
Source: RJO Futures PRO

Corn Daily

 

May ’16 Soybean Daily Chart
Source: RJO Futures PRO

Soybean Daily

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Agriculture - Livestock

Live Cattle Cash Firm but Trending Lower

Jeff Gilfillan

Our stance and resistance figures have not changed much since last blog on 03/29. Our resistance areas held and the trend is still lower. We do see intermediate and long-term value in front-month live cattle futures around 129.75. One of our analysts recommended selling June puts. The market is pricing in seasonal supply and heavier weights into the summer but I anticipate product values to be stronger than the market anticipates due to increased demand following our abysmal spring weather.

Dave Toth of RJO Market Insight identified the 124.875 (04/04 high) and 131.35 (03/17 high) in June live cattle futures as new short-term and long-term key risk parameters favoring a bearish stance.

COF numbers suggest overall numbers are still on the low end in the feedlots but weights are high and cattle over 120+ days are on the high end. This is bearish cattle and points to a possible retest of Dec ‘15 lows in live cattle futures. However, seasonal demand may limit the potential for a November 2015-like sell-off and my guess is anything under 120 will be short lived in June futures.

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

 

Jun '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

USD Continues Multi-Week Slide

John Caruso

RJO Futures Senior Market Strategist John Caruso discusses the currency futures markets. Dollar continues multi-week slide. BOJ mentions possible intervention on the yen. Mario Draghi to speak next Thursday. Feel free to contact John here to leave a question or comment on his video.

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Interest Rates

Bonds Show Strength amidst Looming Rate Hike

Tarik Husseini

Treasury bonds have continued to show strength over the last couple weeks, as the threat of another Fed rate hike abates in the near-term. Although employment numbers were healthy, there is skepticism the economic growth will continue unabated. In fact, there is a general sense European and Asian attempts to spur inflation and subsequent demand are falling flat. Case in point is the Japanese yen. The BOJ threw in everything but the kitchen sink to weaken the yen and it spectacularly backfired. The yen is near yearly highs and its highest level since 2014. The Euro is also at the high point of the year against the dollar, even as the ECB has expanded its bond buying program. Traders have been moving out of the dollar without the specter of an imminent rate hike looming. 

With global growth a question mark, Janet Yellen has said the Fed is going to err to the side of caution even if it overstays its welcome at the current low rates. Thus, the market continues to chase the sector which has provided the best returns, Treasury bonds. 

Moving forward, expect June bonds to fall back down towards the March lows at the 161 level, before continuing down to 157-158.  The rally from 161 to 167 had taken the bonds up to the Fibonacci retracement level of 61.8% of the Feb high to Mar low, where it encountered stiff resistance. U.S. government bonds are the flavor of the month, but barring any reemergence of global contagion, they will lose steam as the Fed tips towards a more hawkish stance. 

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: WebOE

30-year Bond Daily Continuation

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Equities

E-mini S&P in Review

Greg Perlin

The kickoff of first quarter earnings offered mixed signals with Alcoa earning beating the street estimates and revenues failing to meet expectations. With Alcoa shares weaker following its earnings release and the broad market trading higher, it is clear the start of the earnings cycle hasn’t been as important as was forecast. However, the E-mini S&P continued  to post a lower pattern to start today and it could take something surprising to actually throw off a weak downward bias in the stock market. Traders should continue to watch earnings and verbiage coming out of many of the Fed speakers that are coming out the rest of the week.

While we expect a modest bounce from the lack of definitely negative earnings news we suspect any gains will be hard fought and short lived, especially once the market gets a bearish earnings result. In order to throw off a slightly bearish tilt in the broad market, it might require the E-mini S&P to rally above 2053.00 resistance.  

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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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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