RJO Futures Website

May 24, 2016

Volume 10, Issue 11

Featured Article

Webinar: Introduction to Options on Futures - Register Now!

Wednesday, May 25, 2016 at 7 p.m. CT

Intro to Options Webinar

In this webinar we talk about the basics of options, including:

  • The unique features of trading options
  • How to understand options terminology
  • Discover how options are priced and learn to read option quotes
  • How to trade the rising and falling markets using options

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Metals - Gold

Gold Breaks Major Support Overnight

Nicholas DeGeorge

In the early morning trade, June gold is currently trading at $1235.5 which is a change of negative $15 overnight. Gold broke some major support overnight and with a number of spec and fund long positions we could be due for an even more aggressive sell-off back down to the $1,200.0 an ounce level. Also, it will be difficult for the shiny one to get any kind of buying down at these levels due to the US dollar making fresh new highs overnight. Furthermore, with the Feds “Hawkish” tone on interest rates last week and with speculation of a 32% chance of an interest rate hike in June makes it even more difficult for traders and investors a like to step in and buy this market. Below is a daily June gold chart, which clearly shows gold breaking through strong support and indicates the bears are currently in control of this market. 

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

 Daily Gold Chart

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Metals - Silver

Is the bull run still alive for silver?

Eli Tesfaye

Front month July silver futures is down about 17 cents to 16.285. The technical damage done on the silver chart since the May 2 high of $18.05 has to be discouraging to some bulls. Since I wrote the last eView, the dollar has been materially stronger. Please see the first chart I attached below that shows an overlay of the silver chart on the US dollar index just to show you visually how the turn in silver coincides with the turn in the US dollar.

Since the last COT (commitment of traders with options) report showing a record high in silver longs of   non-commensals and non-reportable positions, it is not a surprise that the strength in the dollar resulting in liquidation type of trades.   

In my view, although it is not impossible, it’s premature to assume that the highs are in for silver. The second chart shows that the bull run for silver is still very much alive and well even if silver pulls back all the way down to $15.70 trend line support.  Also, look for the highlighted yellow area to show you where silver could still pull back even further into what market technicians call “the box” 50-60% retracement from the Jan 2016 low of $13.73 to the May 2016 high of $18.05 could still be very well alive.

By aware of economic reports for the rest of the week.  I will be watching Durable Goods orders, jobless claims and GDP reports closely to see how silver reacts to it all. Over all, positive economic reports have given the bears a technical edge. For example, last week’s Fed minutes signal a possible June rate hike has been a catalyst of strength in the US dollar. All in all, positive economic news going forward will further justify Feds intention to raise rates either in June or shortly after.

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.

Jul ’16 Silver / Jun ’16 US Dollar Daily Chart

 Source: RJO Futures PRO

Silver - Dollar

Jul ’16 Silver Daily Chart

Source: RJO Futures PRO

Silver Daily Chart

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Energies - Crude Oil

Energy prices are firmer, EIA data showing another build.

RJO Futures Senior Market Strategist Mike Sabo discusses the energy futures markets. Energy prices are firmer, EIA data showing another build. Feel free to contact Mike here to leave a question or comment on his video.

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Energies - Natural Gas

Natural Gas Trends Lower After Choppy Start to May

Natural gas futures are once again selling off despite some solid attempts to rally towards the beginning of the month. While overall US weather has been mostly normal for this time of year, demand for natural gas is still weak. On Thursday the EIA will release weekly domestic storage levels. If an injection to supplies is seen, this will be the sixth week in a row of inventory growth. Unless there is a very hot start summer that will keep air conditioners on full blast and demanding energy, the natural gas market is going to have a very hard time trending higher with such a large supply still on the table.

Although the market remains generally weak, there is no denying that support is incredibly strong around the 2.08 level in the July contract. Just last week the market tested this support and immediately bounced over 18 cents in the following three days. Though impressive, this move had little long-term significance as April and May’s highs remain unbroken and extremely resistive. The market may be simply revisiting the 2.22 – 2.08 range that held prices for over four weeks through the end of March and beginning of April. If key support at 2.08 is broken and the market holds below that level, a strong argument can be made for a revisit to contract lows (1.939). Closes above 2.26 will put 2.31 and 2.42 back into question, though the trend will still be pointing lower until all of these levels are broken. I do not expect to see a major bullish reversal at this time of year unless supply and demand circumstances dramatically change.

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.

Jul ’16 Natural Gas Daily Chart

Source: RJO Futures PRO

Natural Gas Chart

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Softs - Sugar

Trend is up. Overbought and rolling over or gathering steam for move over 17.50?

Joe Nikruto

This week’s eView commentary for July sugar futures finds the market squarely in bullish territory. The trend is up. The fundamental narrative remains bullish and the market is holding up relatively well as we cycle through risk on/risk off.  Hightower Group research this morning highlights what has been a common theme in years past: Asian demand trumps South American production.  The global deficit number has been shrinking as South American production has grown. It does not appear at this time that this increased production can alleviate the deficit to a degree required to stall or change the trend from up to sideways or down.  There are two levels on the chart that will help traders assess the strength of the uptrend in the days ahead.  The first is 16.51, the 18-day moving average.  The second, 15.83, the 50-day moving average.  In the last 3 months the July sugar futures contract has shown a reluctance to trade below these levels for long, if at all.  The fund trader, who takes on risk in order to potentially profit, typically using longer term models to capture a trend move when and if they occur, is record long.  This can leave pockets of air under the market if the fund trader is not there to support the market on moves lower.  So far we have not seen this occur and the July sugar futures contract has been well supported.  The last aggressive sell-off in sugar was answered with new highs for the move just five trading sessions later.  Bearish, aggressive traders can take a shot from the short side and not have to be wrong for long if the market starts to rally again. But at this time that trade would be predicated more on the idea that July sugar futures are due to correct than any real change in the supply or demand situation.  For traders who are prone to trade with the trend and not yet involved on the long side look for pull backs to the 16.50 area to establish 17.50 -18.50 call spreads in the October contract.

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 Chart

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Softs - Cotton

Brief Pullback as Cotton Digests Big Move

Erik Tatje

Cotton managed to produce a noteworthy rally this spring, rallying from early March through the end of April before topping out just shy of 65.00.  From there, the market has pulled back a bit off the tops, but appears to have sustained the intermediate-term positive momentum.  Price appears to be in a holding pattern between 60.00-63.00 and further consolidation within this range looks to be a real possibility.  Participants should key in on the 63.00 area near-term for a “tell” as to whether or not the market is ready for another leg higher, or if price action will revert back to the previous range and perhaps slip back to 60.00 – 60.50 support.  Continue to watch for momentum divergence signals at the range-extremes as these signal could serve as potential clues on the market’s next move.  

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.

Jul ’16 Cotton Daily Chart

Source: RJO Futures PRO

Cotton Chart

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Softs - Cocoa

Cocoa Rebounding

Peter Mooses

Technically July cocoa is looking very similar to what we saw in early April. Support was hit and the market recovered – today long traders are hoping for some follow-through. 2885 held for support and oversold levels have helped the cocoa market recover the past few sessions. A break and close above the 9-day moving average also helps the bulls in the short-term. 3018 was touched today as the high was put in early, putting 3020 back in the picture as resistance again in the contract. After almost three weeks of negative cocoa trading and a hit of around 10% on prices, a bottom seems to have been put in. Look to the outside markets for guidance. Lighter volume should be anticipated heading into the holiday weekend.

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.  

Jul ‘16 Cocoa Daily Chart

Source: RJO Futures Pro

Cocoa Chart

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Softs - Coffee

July Coffee Seeing Volatile Sell-off

Adam Tuiaana

July coffee prices have taken a major plummet since May 17, failing to reach the March highs and break above those critical resistance areas. Almost as soon as this failure took place we’ve seen six consecutive days of follow-through selling, which likely has July coffee aiming at the major support level of 119. Most of this volatile sell-off action is related to fundamentals surrounding the large Brazilian harvest and sluggish demand. In addition, the second largest producer, Vietnam has seen consistent rain in major growing areas, which is also bearish for coffee prices. The Hightower Group has also reported there is “talk that funds will liquidate their net long position built up over the past several weeks”.  The key area to monitor will be the 119 level, as it is the last corrective low. A violation of this area could have coffee quickly selling back off to the 115 area. A bearish short-term position to 119 should be the play.

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. 

Jul ‘16 Coffee Daily Chart

Source: RJO Futures PRO

Coffee Chart

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Agriculture - Grains

Grains Showing Positive Strength

John Kennedy

Equity markets are very strong and the US dollar received a boost from a reported 8-year high in new home sales this morning. Crude oil is up today, trading at $48.55.

Grains are also bullish in spite of dollar strength. July corn ($4.02, +4.4), wheat ($4.68, +6.2) and soybeans ($10.67, +8.4) have each shown positive strength, trading up to near level technical resistance. Global weather and demand for US grains remain the primary market factors.

Weather in the United States is overall bearish for the next 7-10 days. Temperatures will be more seasonal, leading to a moist/warm near-term outlook. Favorable news now will inevitably lead to dryness/heat concerns later in the growing cycle, but for the next few weeks, bulls may be starved of favorable news.

Export sales yesterday (week ending 5/19) were as expected/lower, with corn alone meeting analysts’ expectations. US soybeans were a marketing year low at 77k tonnes, below market expectations. Wheat came in at 301k tonnes, laying at the bottom of forecasters expectations. Within the expectation range was corn, reported at 1.076 MM.

US corn planting is 86% complete vs. 88% expected (75% last, 85% average). Soybeans were 56% done vs. 55% expected (36% last, 52% average). Spring wheat planting is nearly complete at 95% and winter wheat conditions were 62% good/excellent.

The next US grain report is on June 10, with crop production and USDA supply/demand released at 11 am CST. An FOMC meeting will wrap the following Wednesday, June 15, with a current 35% chance of rate increase.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-373-5470 or jkennedy@rjofutures.com.

Jul ’16 Corn Daily Chart

Source: RJO Futures PRO

Corn Chart

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Agriculture - Livestock

Fed Cattle Futures Discount Large COF Placements

Jeff Gilfillan

Live cattle futures sold off sharply Monday morning and continues to trade technically weak today following Friday’s Cattle on Feed report. The surprise on Friday was an unexpected 107.5% YOY for April Placements. The market had already been pricing seasonal weakness past June and even June futures has been trading $8-9 under last week’s cash trade.

The live cattle charts provide some technical value at current levels which have slightly violated Fib support levels from April/May lower range. There is also technical value around 112.25-113.25 on a weekly continuation chart and a weekly “washout” price on a daily down at 107.00.

I believe the structure of the LC futures market currently is incentivizing feedlots to market more COF and recent placements indicate supply is ample through 3rd and 4th quarters. Feeders are appropriately selling off in line with live cattle. I do believe future placements will not continue to surprise as a good part of the increase was regional.

The question mark is demand and whether wholesalers/retailers will bring back strong demand for beef and encourage store/restaurant traffic? Exports might get trumped later this year so hopefully beef marketers take advantage of healthy margins to rebuild domestic demand.

If you are a prospective client and 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 Chart

Feeder Cattle Weekly Chart
Source: Track'nTrade

Feeder Cattle Chart

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

Live Cattle Spread

 

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Currencies

Anticipated Rate Hike Gives USD a Euphoric Run Higher

John Caruso

All eyes are on the US Dollar Index as it attempts to carve out its fourth straight week of gains.  Recent jibber jabber of higher interest rates by the Fed come June (32%) and or July (more probable at 50%), is creating this euphoric run higher in the USD.  A close above trend-line resistance at 95.30, could set the stage for a run to 96.65 to 96.90, where more resistance could come in the form of the 200-day MA.  Inversely, the Euro has been under fire from both extreme gains higher in the USD as well as a steady flow of softer than expected economic data.  Also weighing on the Euro Currency is the upcoming Brexit vote in June as the future of Great Britain hangs in the balance.  At the moment forecasters are telling us that it is “too close to call” which is largely contributing to Euro currency anxiety. 

The scheduled release of economic data for the US this week is back loaded to Thursday and Friday.  On Thursday we’ll see a release of April Durable Goods Orders, expecting a month over month drop to 0.3% from 0.8% in March.  We’ll also see on Friday our second estimate for Q1 GDP expected in at 0.9%, from a prior reading of 0.5%.  The uptick perhaps coming from our most recent reading on Retails Sales (+1.3%).  Janet Yellen is set to speak at Harvard University at 10:30 am EST on Friday, which you can bet that traders and investors alike will be cluing in on hints towards interest rate increases over the next few months. 

Daily USD Chart showing a break-out above trend-line resistance with next upside target near 96.65 (200-day MA)

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.

Jun ’16 US Dollar Index Daily Chart

US Dollar Chart

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Interest Rates

Keep an Eye on the Yield Curve

Tarik Husseini

The interest rate landscape has changed since last reported.  Whereas the probability of a June rate hike was in the low single digits just a couple weeks ago, now the chances stand at better than 30% as a number of Fed officials have signaled that a rate hike isn’t off the table.  A December hike stands at 84%, up from 46% a month ago.  However, consensus dictates that the Fed will not risk a June hike ahead of the Brexit vote and uncertain growth.

Keep an eye on the yield curve.  The market is telegraphing a rate hike or two before the end of the year.  This is most apparent in the flattening of the curve, with the yield on the short end rising in relation to the long end of the curve.  The Wall Street Journal reports that “Selling short-term debt and migrating to longer term bonds has picked up momentum over the past week as investors adjusted their portfolios to the risk of a near-term tightening act by the central bank.” In fact the spread between the 2-yr and 10-yr note stands at .93 percentage points, the tightest since 2007.  Typically, a flattening curve portends slowing growth as the Fed tightens money supply, however the buoyancy of the long end of the curve (10-yr - 30-yr) could be a result of attractive yields in relation to the rest of the developed world.  The Treasury bond is King among bonds, as Europe and Asia continue to languish in a negative rate environment.

On the technical front, focusing on the June 30-yr Treasury bond futures, the predominant range is 16100-16700.  That is a 6 point range, or $6000 on one contract.  It has been a very tradable range for the past three months.   I believe the path of least resistance in the near-term points down to the lower end of the range.  If there is an uptick in inflation, we could quickly break the lower end of that range and move swiftly to the 15800 mark. 

Dates to keep in mind are the June 14-15 FOMC meeting.  Prior to that, the May Jobs report will be released on June 3, and Fed Chairwoman Janet Yellen will speak on June 6 before the World Affairs Council of Philadelphia. 

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

Jun ’16 30-Yr Treasury Bond Daily Chart

Source: RJO WebOE

30yr Bond Chart

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Equities

Greg Perlin

Despite weaker Asian equities overnight, European and S&P futures have started out on positive footing.   While the Brexit vote remains too close to call those in favor of staying are pouring on the reasons to stay ahead of the government imposed commentary black out that starts on Friday.  At least to start today there isn’t much in the way of anxiety in place and the market doesn’t appear to be focused on the impending flow of US data.

While the E-mini S&P managed a somewhat impressive bid into new highs yesterday and the market is showing very positive action early today, the June E-mini remains below resistance at 2071.  Low volume yesterday and the inability to hold the probe higher suggest that the markets might have shifted into a position where good economic news is bad for prices.  In other words, the focus on the June Fed decision is creeping into the equation and could soon be dominating the trade.  In short, the bulls might be able to foster periodic short covering but without a definite improvement in global sentiment we would be a seller of rallies in the E-mini near resistance at 2071-73.

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 500 Daily Chart

Source: RJO Futures PRO

S&P e-Mini Chart

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