RJO Futures Website

September 13, 2016

Volume 10, Issue 19

Featured Article

Webinar: Trading Volatility with Options - Register Now!

Thursday, September 29 2016 at 11am CT

Trading Volatility with Options

Volatility is a key concept that experienced options traders have had to master in order to achieve consistent results from trading options. It is a crucial aspect that often gets overlooked by newbie traders and can lead to detrimental consequences. If implied and historical volatility is all 'greek' to you, then you could find value by joining this webinar!

  • During this webinar you will learn:
  • What moves the price of an option
  • The difference between historical & implied volatility
  • How to spot regimes of high and low volatility
  • Which option strategies to apply and when
  • How to read price action to support your option trades

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Metals - Gold

Gold in a Range Trade

Nicholas DeGeorge

In the early morning trade, December gold is trading slightly in the green at $1327.4.  Gold has been in a very choppy trading range for just over a month and has been head faking bulls and bears alike. Gold has rebounded from yesterday’s sell off mostly due to dovish rhetoric from the Fed’s Lockhart and Brainard. The range trade on gold over the past month has been mostly due to markets pivoting between fears of a rate hike and talks that the US economy is too weak to raise rates.

If you take a look at the daily December gold chart, you’ll clearly see the just over $50 range it’s been in recently. If you are a gold bull, look for a break above last week’s high of $1357.6 and if you are a gold bear, look for a break below the September 1 low of $1305.5. I have highlighted both levels on the chart below.

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

Would silver erode further on fear of rate hike?

Eli Tesfaye

New contract December silver is trading $19.00 unchanged for the day. It seems that silver is following equities to the downside this later morning. The primary catalyst is, of course, the growing speculation that the Fed will likely move to raise rate sooner than anticipated. In the past eViews I did point out that a December rate hike is not out of the realm of possibilities. Long-term trend is still up for silver but the near weakness below the 50-day moving average and possible close below $18.50 would probably accelerate selling pressure.  

From a technical perspective, the market is stair-stepping lower since it was unable to close above critical resistance of $20.00. In my view, not much enthusiasm will be there to bid silver until we get a move to $20.00. Currently, momentum is to the downside, and it would be beneficial to put new position to the upside on strength rather than weakness. These types of price actions provide trading opportunities that I will be happy to discuss with you.

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.

Dec ’16 Silver Daily Chart

Source: RJO Futures PRO

Silver Chart

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Energies - Crude Oil

Crude oil – IEA Sets the Bear Tone

Michael Sabo

Since the last eView oil has moved lower after failing to make new highs.  On September 8 Nov crude oil hit a high of $48.38 and yesterday the market hit a low of $45.32.  The fundamentals have not changed much – the US dollar has continued to show weakness, inventories are ample, equities look weaker (at least for today) and demand remains questionable. Most notable: the IEA has come out and stated that we should see significant lack of demand coming out of Asia and Europe leading to an increase in global oil surplus through the first half of 2017.  Be sure to watch tomorrow’s EIA Report for a possible build in stockpiles, this should continue to favor the bear camp.

Short-term technical indicators look to confirm the bearish sentiment in my opinion and the market should continue its downward descent. Today the market is currently trading an inside day. If this continues, I would look to play a breakout tonight.  Overall I remain bearish BUT would play the breakout.  For more cautious traders I would recommend using an option strategy.  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

Nov ‘16 Crude Oil Daily Chart

Source: RJO Futures PRO

Crude Oil Chart

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Softs - Sugar

October sugar futures: More sideways action or impending liftoff?

Joe Nikruto

In preparing this week’s eView comment I couldn’t help but notice that October sugar has essentially been trading in a range between 18.00 and 21.00 since the upside breakout in May. That would be about 5 months of range trade in one of the markets most prone to big trend moves, both up and down.  Even with bouts of risk off and crude oil trading down to $40 per barrel sugar has shown marked resilience. I believe this speaks to the underlying fundamental picture.  Less sugar is available while more is being consumed.  Nowhere is this more evident than China. Decreased production of sugar in China has resulted in increased imports into China via established and recently more creative channels.  However they manage to work it out, China has supplies they need to acquire and the commodity markets do a very good job of making them pay up.  Managed fund money has been long sugar since spring and except for brief episodes of profit taking has stayed long. One way to interpret the sideways chart action we have seen is that the funds are as long as they are currently going to get and the fundamental picture is just bullish enough to keep them from being chased out on technical breaks. 

Even with the extended sideways action sugar appears to be coiling for another attempt at an upside breakout.  It is difficult to see what the next bullish catalyst will be but the chart may be telling us that it won’t take much to inspire new longs to enter the market.  Because the 50-day moving average has flattened out and the size of the fund long is rather large it could make sense to use calls or even call spreads to position for a potential upside breakout.  Closes below the 50-day moving average, 19.89 in October sugar futures or the swing low on the weekly chart, 18.71, could lead to further liquidation by funds.  Options often force us to sacrifice some potential profit for increased comfort or staying power.  This might be one of those times where that tradeoff makes good sense.  FYI: October sugar options expire on the 15th of September and March sugar options expire in February of 2017.

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.  

Oct ’16 Sugar Daily Chart

Source: RJO Futures PRO

Sugar Chart

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Softs - Cocoa

Cocoa – Bottom found, recovery in process?

Peter Mooses

December cocoa is looking to the equities and the pound for support in the short-term. From a fundamental standpoint, Ivory Coast recent weather pattern could help the crops production. Good amounts of rain during the last quarter of the calendar year could help with output, which would lower longer-term prices. The headline the past week has been that Ivory Coast port arrivals are 16% behind this time last year. After the steep decline we have seen in the December futures contract since September 7th – traders look to arrivals, outputs and weather to steer them in the right direction as we trade the last contract of the year. Technically, the chart is confused. Consolidation is likely to form at these levels if the fundamentals can’t push the market either way. A move and hold above 2860 is needed to get prices back up to the next area or trading range. From there the 200-day moving average would be in sight as the market reaches back for 3000. 3000 looks very far away for the time being though with no substantial news out there that could give fuel to the bulls.

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 Chart

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Softs - Coffee

December Coffee Recovery

Adam Tuiaana

December coffee has made a strong recovery, now looking to test highs not seen since July. It also appears that we may be seeing the end of the correction in this intermediate down trend, which started in mid-July.

A potential head & shoulders reversal up pattern can be viewed on the daily chart below. The top of the head in this pattern is measured at 13785, slightly above the critical low of 13760 from June 27 (we had also been monitoring this area). Note the left shoulder is higher than the right shoulder and the neckline break looks to be textbook, as far as these patterns go. A simple measuring objective from the neckline to the tip of the head gives us an upward measuring objective of 15755, which would put this rally (if the pattern holds true) very close to the high from July 15 of 15765.

Some dry weather in Brazil, along with slower monthly outputs in Columbia have helped to contribute to this strong recovery in the price of coffee. Weather issues related to El Nina will also attract many eyes on the upcoming Vietnam crop, as the Hightower Group has reported a “10 percent decline or higher from last year”. Time for the bulls to step in.

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.

Dec ’16 Coffee Daily Chart

Source: RJO Futures PRO

Coffee Chart

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Softs - Cotton

USDA Shows Revision Higher in Production and Ending Stocks

Yesterday the USDA released their World Agricultural Supply and Demand figures that showed an increase in production and ending stocks.  Domestic production was revised up to 102.47 vs. the Aug. figure of 101.58, which certainly could have been a catalyst for yesterday’s sell off.  There is a Fibonacci confluence zone from 69.35 – 68.75 on the chart, which is precisely the area that the market recently stalled from.  Yesterday’s action marks a selloff from this area and could set the stage for further selling pressure should the market break below 66.00 on a closing basis.  The RSI appears to be threatening a downside reversal as well noting that the recent swing low in price produced a move below the 40 level on the RSI, which typically serves as the “oversold” extreme in a bull market.  It will be interesting to see whether or not the RSI can surpass the 60 level on a subsequent rally, as this type of action could give an early indication of future price direction.  Initial support appears to be seen at 66.00 with addition support around 64.40 - 63.75.  Should the market break below the secondary support level on a closing basis, participants may be in store for a change of trend, which may result in sideways, choppy trading conditions. 

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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Agriculture - Grains

Grains Trade Lower Amid Heavy Balance Sheets

Stephen Davis

The grain markets are lower today, with soybeans continuing to slide following yesterday’s huge US soybean crop estimate by the USDA. Corn and wheat traded lower amid very heavy US and global balance sheets. The next fundamental focus for the markets will be the September 30 Grain Stocks report and Small Grains Summary report, with the Grain Stocks report potentially showing a huge impact on the 2016/2017 balance sheets should anything unexpected be reported that day. There were no USDA export sales announcements this morning.

It was a mixed bag on state corn yields in the September Crop report. The USDA left Illinois unchanged at 200 bushels per acre. They took Indiana down 2, Iowa down 1 and Nebraska down 3. They added 6 bushels to Kansas, 5 to Michigan and 2 to Wisconsin, which should have a record corn crop for that state. Soybean yield adjustments were almost all in the positive, upward direction.

The first thing we have to go through is harvest. Corn harvest is running slightly behind normal with 5% of the corn crop harvested, compared to 9% on the 5-year average. Farmers will try to store corn and sell soybeans for money to pay bills. The average corn yield may shrink back a little further but be offset by upward adjusted acreage in the October report. The carryover in corn near 2.4 billion bushels will be heavy resistance for any price discovery rally. The October crop report should be bearish for soybeans as well, with the old adage that big crops get bigger.

Here is a new headline. ”The chances of La Nina have improved considerably.” La Nina is possible this fall, if not than early 2017 according to Dr. Wolter who said this on Sept. 8, 2016. Some believe Dr. Wolter, who is at The National Oceanic and Atmospheric Administration, to be the premier expert on El Nino/La Nina. Keep in mind it was La Nina that brought us the 2012 drought that devastated US row crop production.

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.

Dec ‘16 Corn Daily Chart

Source: RJO Futures PRO

Corn Chart

Nov ‘16 Soybean Daily Chart

Source: RJO Futures PRO

Soybeans Chart

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Agriculture - Livestock

Ample Supply and Competing Proteins Weigh Down Cattle

We tested light support between 99-100 last week in front month live cattle futures. The short covering bounce has produced 7 cents of reward for value pickers. Cash spreads have been wide and packers seem to be patient buyers.

COT data does not provide much fuel for either side. The long-term charts show strong support around 92-93 but I doubt we’ll get there. If demand picks up going into fall, I would expect packers to work more of the offer side as margins appear healthy.

Feeders have similar long-term support at the 125 area and with confirmed large supplies of feed. I expect that area also to hold and probably not get there.

Please follow RJO Market Insight’s Technical Blogs in LC. Dave Toth offers excellent insight for RJO clients. If you would like direct access to RJO's extensive in-house and independent insight and my personal client newsletter, contact me directly for a trial.

Contact me at 888-861-0382 or jgilfillan@rjofutures.com. You may also follow me on Twitter @RJOJeffGil.

Live Cattle Daily Continuation Chart

Source: Track'nTrade

Live Cattle Daily Chart

Live Cattle Monthly Chart
Source: Track'nTrade

Live Cattle Monthly Chart

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Currencies Video Update

John Caruso

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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The Uncertain Future of the S&P

Greg Perlin

U.S. stocks on Tuesday opened significantly lower as enthusiasm over the prospect of lower interest rates diminished. This had propelled equity benchmarks higher on Monday, however investors have turned their attention to lingering worries about oil oversupply. Crude-oil prices sank as the International Energy Agency warned of slowing growth in demand. The S&P 500 index gave up 13 points, or 0.6%, at 2,145. All 10 sectors of the S&P 500 were trading lower, led by a 1.6% drop in energy. 

U.S. stocks closed near intraday highs on Monday after comments from Federal Reserve Gov. Lael Brainard calmed market fears that the central bank will raise interest rates soon. The S&P 500 index rallied 1.5%, while the Dow industrials jumped 1.3%. Brainard said the Fed should be cautious in tightening policy to avoid getting trapped in a low-growth, low-inflation environment.

Hawkish comments from Boston Fed President Eric Rosengren last week spurred expectations for a move by Fed policy makers at their Sept. 20-21 meeting. However, after Brainard's remarks, the probability of a rate increase next week fell to 15% from around 24%. The conflicting messages have left traders struggling to assess just where the Fed stands.

Late on Monday, Goldman Sachs slashed its forecast for a rate increase at the September meeting from a probability of 40% to 25%.  It is the third time in two weeks that the Wall Street bank changed its stance on the September meeting, having lifted the odds to 55% after the nonfarm payrolls report. However, this was cut to 40% after the ISM services data last week. With a number of dissenting voices, the future is still unclear. It remains to be seen if investors have the desire to push markets higher amid the backdrop of political and economic uncertainty. With the volatility as of late set to continue, it may throw up trading opportunities at stock level for the shrewd investor.

There are no Fed speakers on tap for Tuesday, as the central bank has entered its "blackout" period ahead of the September meeting.

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

Sep '16 E-mini S&P Daily Chart

Source: RJO Futures PRO

Equities Chart

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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.


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.

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