RJO Futures Website

August 16, 2016

Volume 10, Issue 17

Featured Article

Webinar: Trading Opportunities for Busy People - Register Now!

Wednesday, August 17 at 11 a.m. CT

In this session you will learn:

  • Swing trading vs. day trading
  • Time saving tips
  • How to use a defined trading strategy

 

Webinar: Futures Trading Strategy - Register Now!

Wednesday, August 24 at 11 a.m. CT

In this session 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

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Metals - Gold

$1400 or $1300 an Ounce Gold?

Nicholas DeGeorge

In the early morning trade December gold is currently trading higher, but it is well off its overnight high of $1364.3. Due to the dovish rhetoric by the Fed, the rally in gold was mostly because of the US dollar’s weakness. Moreover, gold is probably holding above last week’s low with additional ongoing fear towards Japan and the UK, which prompted more gold buying/holdings. All in all, it was mostly positive for gold price actions overnight.

If we take a look at the December daily gold chart, I highlighted a good break out level for the bulls and also for the bears. If gold can break above $1370.0 an ounce which is slightly above the last couple days price action and trend lines, then we can probably finally look for a rally up to the $1400.0 an ounce handle. For the bears, if gold breaks below last week’s low of $1335.0, then look for a sell-off to the $1300.0 an ounce handle or even lower. Please feel free to contact me if you have any questions about gold or this chart.

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.

Dec '16 Gold Daily Chart

Source: RJO Futures PRO

Gold Chart

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Metals - Silver

Soft CPI and Weak Dollar Catalyst for Higher Silver Price?

Eli Tesfaye

The September contract Silver futures is up about 3 cents this morning trading around 19.875.  Given weakness in the US dollar and weakness in equities indices, it is not surprising silver is edging a bit higher. Other supportive factor that got my attention is a rather soft CPI report from this morning. It goes without saying that it will be hard for the Fed to justify a rate hike in the near future with a tame inflation pressure.   

In Overseas markets, there is still a great deal of uncertainty over the outcome of the British referendum to leave the EU and also the impact of the recent monitory authorities in Japan to expand the money supply. Unlike Japan, the US Fed authorities are eager to tighten the money supply. Since the Fed is data dependent, favorable economic activities is needed to facilitate such action. Another factor that might help silver bulls to the end of the year is the uncertainty over the direction of the US economy pending the outcome of the election.  

As always, one can benefit from paying attention to The Commitment of Traders with Option Report.  COT still shows sizable net long of 107,572 contracts for both non-commercial and non-reportable positions from Aug 9, 2016 reading. That said, two weeks ago, the July 26, 2016 reading had a record 110,403 net long for the same group. That shows a bit of long liquidation as seen on the chart below in the past few weeks. Those same longs lost interest in the recent protracted consolidation as seen in the charts below.

From technical prospective, seen on the chart below, silver is in a long protracted consolidation since the spike high of 21.225 in early July this year. As I mentioned before, continued trade below $20.00 of psychological level will continue to discourage bulls. Silver price needs to continue to hold above 19.50 to discourage farther price erosion. In my view, the longer the consolidation, the stronger the breakout up or down. For now at least, the breakout will likely favor the bull camp. The market will need to take out the early July 2016 highs for the price to accelerate higher.  This consolidation area provides a great deal of trading opportunities. Please contact me to discuss specific strategies.

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.

Sep ’16 Silver Daily Chart

Source: RJO Futures PRO

Silver Chart

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Energies - Crude Oil

Crude oil – we came, we saw, we bottomed… and bounced!

Michael Sabo

Since my last eView article on August 2nd which was titled “Crude oil – close to a bottom?” oil has moved significantly higher.  On August 2nd Oct crude oil hit a low of $40.05 as of the time of this writing, today’s high is $47.11 a barrel.  All the while oil rig counts continue to increase week over week and current stockpiles remain ample.  The US dollar has continued to show weakness which has been supportive for oil and the biggest bullish factor in my opinion is the talk coming out of Saudi Arabia that they may actually slow oil production, this alone I think will continue to give the market support. Will it be enough though to prevent another sell-off?  I’m not quite convinced. Be sure to watch tomorrow’s EIA Report for a possible build in stockpiles, this could set the market up for possible profit taking later this week.

Short-term technical indicators are starting to look overbought in my opinion and the market may start to lose some of this upside momentum.  I would look for a sign of market consolidation and look to play a breakout.  As of right now I remain a bit neutral / cautiously bearish, BUT that will change once the market gives a clearer direction after the recent upside move.  Please call me for more details and to discuss some strategies. 

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

Oct ‘16 Crude Oil

Source: RJO Futures PRO

Crude Oil Chart

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Energies - Natural Gas

Natural Gas Struggles to Recover After Sharp Drop

Natural gas futures are starting to trend higher after a sharp 20 cent drop in prices last week. Many attribute the sell-off to signs of cooling temperatures into the end of the US summer and a rejection of the strong upside price action towards the end of July. With summer coming to a close and inventories still sitting around 15% above the 5-year average (EIA), the fundamental side of the market may be losing bullish potential as we await for predictions on demand for the coming winter. If late August and early September weather models call for an early and frigid start to fall and winter, bullish fundamentals will certainly be revitalized. Until then, a cool end to summer will likely provide a bearish force.

Though the market is slowly recovering over the last three sessions, it is important to note the lack of volume supporting this bounce. Traders should be cautious of this type of low volume recovery as it suggests there is little conviction behind the move. Ultimately, I feel the market is currently looking to normalize around the 2.50 area, just below the 50% retracement zone for this year’s price range. If weather models continue to suggest cooling temperatures in the coming weeks and EIA weekly inventory reports show further builds, the market could extend into the 2.40 level somewhat quickly.

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.

Oct ’16 Natural Gas Daily Chart

Source: RJO Futures PRO

Natural Gas Chart

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Softs - Sugar

Manage risk in late summer, low volume sugar trading

Joe Nikruto

This week’s eView comment on the October sugar futures contract finds our market safely back from the ledge of fund long liquidation and working its way higher.  Ticks away from exiting profitable trend following long trades, funds instead began to add to their long positions taking their holdings to almost record large size, again. This large spec position and low volume, late summer/last minute vacation trading environment could rightfully lend traders pause.  However, sugar has shown timely chart strength in the face of another year’s worth of Brazilian production triumph. Though not interested in fighting the tape, I am reluctant to lend too much credence to this recent rally. 

Many traders are on the beach for the last 2 weeks of August as opposed to in front of the screen.  But, volume or no volume, the chart picture remains bullish and October sugar futures will have to trade all the way down below 18.94 to even begin to change that.  Funds likely possess more fire power and it wouldn’t surprise me to see them continue to push this market to new highs. Use call spreads to position for new highs, manage risk in late summer, low volume trading environment.

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@rjofutures.com.  

Oct ’16 Sugar Daily Chart

Source: RJO Futures PRO

Sugar Chart

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Softs - Cotton

Cotton Breaks Structure Below 71.80

US ending stocks are projected at 8-year highs and news of solid yields have cotton prices on the defensive.  After a massive rally, participants have seen a knee-jerk reaction to the downside, confirmed by a downside breakout of structural support at 71.80.  The market is fast approaching the bullish trend line, which has been tested on several occasions throughout the recent rally.  Further structure can be seen around 66.64, which not only served as a previous level of resistance back in June, but also marks the 50% retracement of the move originating in early March.  Near-term momentum is negative; however, the longer term positive structure remains in play above the 63.44 swing low area. 

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.

Dec ’16 Cotton Daily Chart
Source: RJO Futures PRO

Cotton Chart

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Softs - Cocoa

Cocoa Roll

Peter Mooses

The cocoa chart is telling us that we are moving higher as we enter the December contracts and exit the September – first notice day is August 18th. Today, we are seeing the September contract trade as low as 3020 as bulls sell their longs and roll into December. December cocoa has traded as high as 3045 this morning. The 200-day moving average has been broken in the December contract, but as we saw in the September contract this area has been strong resistance.

After the recent rally, we are reaching overbought levels. With no new demand news, supply continues to be support. Ivory Coast port arrivals are behind last season’s pace – the crop should be below 1.6 mil tonnes. Certain growing regions are reporting black pod disease which will also add to the supply concern.

The next area of resistance is at 3065. If we can close and trade above 3030, look for the move higher. If we continue to trade around 3025, look for sideways trading around this congestion. Until production numbers rise, supply will be the main indicator for the trade. COT numbers should give us a better idea of what traders are thinking as we move into the December contract.

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.

Dec ‘16 Cocoa Daily Chart
Source: RJO Futures PRO

Cocoa Daily Chart

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Softs - Coffee

September Coffee Reversal Down

Adam Tuiaana

September coffee looks to be holding to the Head and Shoulders reversal down pattern that I mentioned last article. Prices continue to be very volatile and choppy with bullish traders stepping in and out as the Brazilian currency grows stronger. A strong Brazilian currency ultimately lightens the pressure of exporters in that country. There are also reports of wet weather over critical growing areas of coffee in Brazil. This has prompted a bullish/ bearish tug of war on coffee prices.  We are now growing closer to the flowering season and all eyes will be on the Brazilian crop. Vietnamese exports were down over 11% from June’s total.

We will continue to keep an eye on the H&S reversal pattern, with a measuring objective of 12550. In the near-term, look for a test of the 13460 critical support level. If this area is violated, bearish traders should consider put option strategies to manage risk while allowing themselves exposure to a potentially large selloff soon.

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.

Sep ’16 Coffee Daily Chart
Source: RJO Futures PRO

Coffee Chart

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Agriculture - Grains

Soybean Traders Should Focus on Demand

The demand side fundamental has been the best supportive factor in the soybeans over the past eighteen months. Mostly driven by the soybean crushers trying to meet demand in soybean meal. Recently all of the focus has been on mostly “ideal” weather conditions. Obviously, favorable weather conditions produce bigger crops, however, it does not guarantee new all-time record high yields. I think that a lot of traders have gotten ahead of the crop production now. There is still enough time for adverse weather to damage some of the crop’s condition between now and harvest. If we do not see soybean yields north of 48 bushels per acre, 2016-17 stocks will be too tight to meet the expected growing demand. Even with big yields in soybeans, I think that the demand side fundamental is being forgotten or at least under estimated. The soybean crop is not yet made!

The November soybean futures contract seems to have good support around the $9.60 price range. Yesterday’s close above $10.00, probably needs to hold today as a confirmation to the technical traders that the recovery rally is real. At the time of writing this article, November soybean’s high of the day is $10.15 ¾. A close at or above that resistance level would confirm a reversal and drive continuation rallies to test $1050 range.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or fcholly@rjofutures.com.

Nov ‘16 Soybeans Daily Chart

Source: RJO Futures PRO

Soybeans Chart

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Agriculture - Livestock

Fed Cattle Cash Firming, Technicals Bearish

My eView article at the end of June discussed the 107 front month washout level as a potential risk level for bulls. We touched just above that level in August futures on 07/21 at 107.10. This was the low which hit not long before a COF report provided enough data for the quants to reverse course.

RJO Market Insight identified 116.35 in Oct futures as a key level favoring a neutral to bearish stance under this level. The washout in July under 110 is still the dominant point on the daily charts and the reversal up over 115 may have been enough to reward the algo traders. There is a small gap to fill at 108.525 in October and markets seem to have a tendency to retest key areas minus any fundamental news lately. So the 110.50 to 108.50 would be target areas for the bears.

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 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.

Oct ‘16 Live Cattle Daily Chart
Source: Track'nTrade

Live Cattle Daily Chart

 

Live Cattle Monthly Chart
Source: Track'nTrade

Live Cattle Monthly Chart

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Currencies

John Caruso

John discusses recent economic reports surrounding the currencies. 

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

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Interest Rates

Directionless Treasuries Poised for a Breakout

Tarik Husseini

The Treasury market hasn’t had much direction for the past month, as contradictory economic reports have hemmed the 30yr bond future in just over a 3 point range ($3000 per bond contract).  It has been a very good trade for technical traders, with a well-defined range offering multiple opportunities to get in and out of the market.  As I write, the Sep 30yr future is at the low end of the range 17105, and flirting with a breakout to the downside.  If we close at these levels or below, it would be the low close since late June.  For that to happen, the market will have to overcome formidable technical support.

The catalyst for a breakout may be speeches made by Federal Reserve officials this week, as well as some guidance provided by the FOMC minutes released on Wednesday.  This morning New York Fed President William Dudley said policy makers could potentially raise rates as soon as next month, September 21 being the date of the next FOMC meeting.  The bond market did reverse sharply lower following Dudley’s comments.  This was reflected in the Fed futures contract pricing in a 22% chance of a September hike, and a 51% chance of a December hike.  Although this is a significant jump from last Friday, Dudley still says those estimates were low, and the market was “complacent” about the need for rate hikes.

As noted above, Interest rates are trading in a range for the past several weeks.  The fundamentals are contradictory, with overall economic growth in question, while employment and housing looking robust.  Look for a breakout of consolidation to provide additional trade opportunities outside of the prevailing range.  Although it is an election year and politics may not be favorable for a rate hike before November, it seems as if the Fed is telegraphing that it is leaning towards raising rates.  If one believes that to be true, favoring the short side makes sense, either at the top of the range, or a break below the current range.  I can help with levels if there is an interest in capitalizing on opportunities in the Treasury market.

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.

Sep ’16 30-Yr Treasury Bond 60-minute Chart

Source: RJO Futures PRO

30yr Bond Chart

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