RJO Futures Website

October 11, 2016

Volume 10, Issue 21

Featured Article

Upcoming Webinars

Trading Currency Futures

Trading Currency Futures Webinar

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Wednesday, October 12 at 4 p.m. CT

In this session you will learn:

  • What makes FX a good market to trade?
  • Benefits of trading foreign currency
  • Typical trends within FX futures
  • An FX futures trading strategy

 

Trading Index Futures

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Wednesday, October 19 at 4 p.m. CT

In this session you will learn:

  • Keys to the index futures markets
  • Benefits of trading index futures
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  • Using the gap trade strategy to build consistency

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Metals - Gold

Gold Futures Bull Market Correction

The gold futures market began the new trading year at the $1,060 per ounce range. The market put a major long term low in at that point. By the end of the first quarter gold futures had already added $228 of premium, bringing the December futures contract to $1,288 per ounce, before correcting and basing a new bottom around the $1,200 range. Midway through the year and with some help from the Brexit referendum gold futures managed to put out a high trade at $1,384 per ounce and then subsequently based another new bottom around the $1,300 range. My point in this recap of the year’s trading event is that gold is back in a bull market and the way the market has been trading is a sign of a “healthy” bull market. Markets should not just go straight up. Long term trends need to go through corrections to test the markets strength. The gold futures have recently put in a new swing low at $1,243 and are currently trading at $1,255. Once the market broke down below $1,300, it pretty much went straight down to this $1,250 range. I think that the market is trying to base another major bottom at $1,250. Longer term, $1,250 will look like a great price to own gold. So far gold has avoided further liquidation coming under pressure from US Dollar strength and a disappointing payroll report last week. This tells me that the selloff in gold is just a correction and has lost that downward momentum. The December gold contract needs to stay above $1,250 and a close above the 200 DMA at $1,262 would drive rallies to test the resistance at $1,300 to $1,305 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

Dec ’16 Gold Daily Chart

Source: RJO Futures PRO

Gold Chart

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Metals - Silver

Silver Temporarily Dulls its Shine

Eli Tesfaye

Silver December futures contract is trading around 17.54 down 11 cents on the day. In my view, the critical December FED meeting fast approaching, metals traders are weighing in the possibility of action from the FOMC.  The recent decline in December Silver may be an early move to price in a potential rate hike, as markets often look to price in fundamental dynamics into the future.  Recent strength in the US dollar definitely put broad-based pressure commodity weakness and silver is no exception.

December Silver has settled below its prior August lows of 18.46 and has printed an October low of 17.115 late last week.  A short term rally to retest the 18.46 broken support now as resistance may be around the corner.  With Silver firmly below its 50 days SMA and 100 days SMA, the market has begun to test the 200 days SMA which currently reads 17.224.  A confluence of price measurement support levels also resides near the 17.50 area, including the 100% measured extension of the August through July decline. 

While December Silver remains above its 17.00 handle, a short term relief rally may regress the current downtrend to test back to the 18.50 to 19.00 handle.  We often look for a market that has broken previously used trend line support to retest those same levels as new resistance, and possibly provide reversal opportunities. 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 – up, up and away?

Michael Sabo

Since the last eView crude oil has resumed its small rally to the upside defying what I would consider overall bearish fundamentals.  Yes OPEC to vote to reduce its oil production but does it really matter and will they actually follow thru with it – In addition it appears Iraq has no intention of playing along with OPEC as the oil minister there is calling on producers in Iraq to increase oil and natural gas production. My thoughts are pretty simple – we have ample oil stockpiles in this country and the OPEC “deal” I think is more talk than reality.  Be sure to watch tomorrow’s EIA Report for possible short term market direction.

Short term technical indicators look overbought in my opinion and the market may be ready for a correction.  Overall I remain cautiously bearish but would recommend waiting to see the market consolidate before entering futures positions.  For option traders this may be the time to explore some ratio put spreads.  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

Source: RJO Futures PRO

Crude Oil Chart

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Energies - Natural Gas

Winter Brings Attention to Natural Gas

Eli Tesfaye

Natural gas continues to maintain a close correlation with WTI crude, while it appears global demand is firming up, for now at least the market is pricing in US winter consumption.  Although temperatures have remained above average across the US, recent forecasts for a colder winter ahead in North America have sparked speculation for a higher price in both WTI crude and natural gas.  With the recent spike in the price of coal, it is likely that natural gas is becoming increasingly more attractive to meet our energy needs as a lower cost solution.  The past few days, international news is focusing on the Russian – Turkish undersea gas pipeline deal that may cause an uptick in future international production numbers.

November natural gas futures have settled above previous 3.350 contract highs, continuing to maintain the series of higher highs and higher lows on the daily chart.  Momentum continues to build to the upside and is confirmed by an increase in volume in the most recent rally from the 3.110 October 3rd lows to the new 3.470 contract highs.  Natural gas continues to rally off all tests of the 100-day SMA, and above prior contract highs.  The 50-day SMA remains above (and has not crossed) the 100-day and 200-day SMA, adding to the short-term cautiously bullish outlook.

While natural gas outlook favors the upside from a seasonal perspective, short-term price retracement is highly likely at this stage in its market cycle.  Nat gas has provided an initial direction, and now may be poised to re-test massive resistance around 3.700. In my view, pullbacks should be seen as an opportunity to participate on the long side, for now at least. Please contact me to discuss trading opportunities.

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 Natural Gas Daily Chart

Source: RJO Futures PRO

Natural Gas Chart

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Softs - Sugar

March Sugar Futures: Head And Shoulders signals impending top or continuation to higher levels?

Joe Nikruto

This week’s eView commentary finds the March '17 ICE sugar No. 11 futures contract at yet another critical juncture. The trend is up on all time frames. News flow is mixed with wire services reminding of next years anticipated deficit, Chinese stockpile sales into their domestic market and increased sugar production from decreased cane harvest activity in Brazil. Or was it decreased sugar output from increased sugar production? Either way, you can build your own fundamental case. The chart however, has been telling the same story for a long time. The uptrend has been strong. Sugar futures have spent very little time under the 50-day moving average in 2016 with even extended sideways trading resulting in new upside breakouts. With the underlying bullish fundamental being multiyear production deficits the commodity trading funds have been able to build what is reported to be a record long SPEC position for sugar and a record long SPEC position for any agricultural commodity ever. Biggest there has ever been.

My chart shows larger open interest in the past but it is the SPEC component that is lending traders pause. The concern is that if the large speculator decides to exit their positions is sugar futures the downdraft could be swift and rather deep. This morning the Hightower group in their daily work highlighted a possible head and shoulders pattern on the chart. The head and shoulders pattern is powerful for traders not only when they work and help traders position for reversal, but also when they don’t work and signal a continuation of the trend. At the time of this writing, 11 am CT on Tuesday morning, March sugar is trading 23.06 which right on the 18-day moving average. So, the jury is still out on any head and shoulder reversal talk. Moves back above the 10-day moving average, 23.24, will have the chart looking more like flagging consolidation than topping or reversal type chart action. An inability to even penetrate the neckline of the potential head and shoulders should give us an early signal that there is still higher prices to be seen in this uptrend. With the size of the spec position and higher prices ultimately inspiring increased production from global sugar producers it makes sense that traders and commentators would begin to seriously consider the short side. And, even the most optimistic commentators see the sugar market remaining in deficit well into 2017. It is unlikely the funds will sell until that changes.

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.

Mar ’17 Sugar Daily Chart

Source: RJO Futures PRO

Sugar Chart

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Softs - Cotton

Cotton Market Neutral Ahead of USDA Report

December cotton prices remain in a sideways holding pattern as market participants position themselves ahead of Wednesday’s USDA World Agricultural Supply and Demand Estimates report.  Despite mounting concerns of hurricane Matthew’s potential impact on North Carolina crop, it appears as though flooding and adverse impact may be less than initially expected.  Furthermore, accommodative weather conditions West Texas are seen as a positive and may prove to be sufficient to offset any adverse impact stemming from hurricane Matthew.  Expectations for an increase in crop production could further bolster ending stocks, adding to the already impressive figures for the coming year.  Price action remains above the 200-period MA and below both the 20- and 50-period, confirming the neutral, sideways price action as of late. 

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

Bears Take Over Cocoa

Peter Mooses

Cocoa bulls have just about everything working against them at this point. Technically, 2799 failed and the market can’t seem to find a bottom. 2625 appears to be support today as the market looks at 3-year lows. Not only are the technicals finding new lower ranges but the fundamentals have pulled all support the cocoa market had.

The weather conditions in key growing regions, Ivory Coast, Ghana, are positive for crop production. Output data coming in the next couple weeks could reflect this, adding to the down trend. Upcoming grinding data in Europe and N. America will add pressure. The COT report last week showed long liquidation, another negative factor. The recent currency trend and Brexit concerns also weigh on cocoa futures.

As this market tries to find a recovery point, look for market trends and data releases for short-term guidance.

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 continues to push higher, holding a long term trend line that has been in place since early May of 2016. December coffee now looks to test highs not seen since April of 2016.

We’ve been monitoring a potential Head & Shoulders reversal up pattern which 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 and upward measuring objective of 15755, which would put this rally (if the pattern holds true) very close to the high from July 15th of 15765.

Brazil’s key Robusta growing area could see drier weather ahead, in addition to previously-dry conditions. In addition, 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 put tremendous pressure on the upcoming Vietnam crop, as the Hightower Group has reported a “10 percent decline or higher from last year”. The bulls should get aggressive here.

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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Agriculture - Grains

October Picks Up September’s Slack in Grains

Stephen Davis

Soybean, corn and wheat are all marginally higher as we move into tomorrow’s always important October crop report at 11:00 am CST. Some important items to watch in tomorrow’s report is US wheat’s export sales are likely to be adjusted 25 million bushels higher than September’s report due to an uptick in export sales. Low prices are the cure for low prices as we are seeing a pickup in export demand as the wheat market trades to 7-year lows. There is a record large short position in the wheat market (similar to corn), so do be careful selling wheat at these levels.

Similar to the wheat market, we expect US corn export sales to likely be adjusted 25 Million bushels higher than September due to brisk export sales. The demand has been very good for corn lately and that will be the key to higher price discovery in the months ahead. Can the demand for corn improve? I think it can. Nonetheless, it is noteworthy that The USDA on the October crop report has overstated final US demand in 6 of the last 9 years.

US soybean export sales will likely be adjusted 25 million bushels higher than the September report due to brisk export sales, while the soybean crush rate will be left unchanged. Also in tomorrow’s report, yields on corn and soybeans will be watched closely. With reports of stellar soybean yields common place some are saying that the yield on soybean has to be above 52 yield per bushel for this report to be bearish. It is always important to watch and see if we get a bearish report and trade lower and/or if we get a bullish report and trade higher. The market’s response is always the key.

Crude oil is above $50 which is impressive with all the crude oil in the world. That supports soybean and corn. It is October now and seasonally this is a stronger month for soybean than September. Soon our US harvest will be over, directing focus on to South American planting and People’s Republic of China purchases of US soybean. Keep an eye on money flow and the technical picture of these agricultural markets.

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.

Nov ‘16 Soybean Daily Chart

Source: RJO Futures PRO

Soybeans Chart

 

Dec ‘16 Wheat Daily Chart

Source: RJO Futures PRO

Wheat Chart

 

Dec ‘16 Corn Daily Chart

Source: RJO Futures PRO

Corn Chart

 

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Agriculture - Livestock

Trend still down – Nearing Long Term Value Areas

Jeff Gilfillan

Fed cattle futures continue to work down the charts like a slinky. Short covering targets are edging lower. October highs now serve as a short term bias to favor the short side of the futures. As noted last blog, long-term value areas around 92-93 should provide some support. Again, I doubt we’ll get there soon. Futures is at a discount to cash which is generally the other way around this time of year and the COT data show no over or under weight positions.

Buyers of new daily lows in many futures sectors including live cattle generally have been rewarded if your account can handle some heat. Take a look at the Oct. daily charts. As previously noted, these recoveries appear very mechanical and worth a closer look across the board.

Traders with a high risk appetite might consider selling puts or buying futures with $3.00 plus risk or put protection on days when we break new lows in the $2.00 range as the market potentially works towards long term support.

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

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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Interest Rates

30-Year Bonds Hover Waiting for Rate Hike

Tarik Husseini

Today 30yr bonds are seeing an uptick due to the selloff in equities.  However, the flight to quality bid is rather muted considering the extent of the weakness in stocks.  As I write, the SP is down 26 points or 1.15%, and the December 30yr bond is up 12 ticks, or .21%, to 16417.  It feels like bonds are trading up grudgingly.  On a related note, the US dollar is at its highest point since July.  I believe the common thread across these markets is the outlook for interest rates.  That outlook is one where a rate hike in December is looking more and more like a done deal.  This is bullish Dollar, bearish stocks, bearish bonds. Today, bonds aren’t following the program due to flight to quality forces.

The chance of a rate hike at the Nov 1-2 meeting is slim, at approximately 19%, down from 23% prior to the Oct. 7 jobs report.  However, the probability of a hike at the Dec 13-14 meeting has jumped form under 65% to 70% since the Oct. 7 report.  Even though the Jobs report was disappointing in terms of aggregate numbers, the wage growth was impressive.  Wages increased at a 2.6% year-over-year rate.  Economists are beginning to point out that the Fed will want to avoid wage push inflation.  This is an economic phenomena in which “higher wages cause higher prices which in turn causes wages to increase further. “At the end of the day, the Feds main job is to head off inflation. 

Technically, the Dec 30yr bond is hitting some intermediate support at the 164 handle.  This level corresponds to resistance in the spring, which was breached in June.  With the September Jobs report coming out this Friday, this support level will most likely hold until the report comes out.  Keep an eye on the wage growth number as mentioned above.  The number of jobs created, and the unemployment level is important, but it is not the end all and be all.  In my estimation rallies should be sold.  We are ultimately talking about a shift away from QE globally, and a tightening of monetary policy domestically.  This will be bearish for bonds in general.  Although there may be unforeseen bumps along the road, the information that is coming out of central banks now will translate to a continuing downtrend in bonds.  I can help with levels to establish short positions whether with futures or options.

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

Dec '16 30-Yr T-Bond Chart

RJO Futures WebOE

30-yr T-Bond Chart

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Equities

S&P in Focus

Greg Perlin

Alcoa unofficially kicks off earnings season with a weaker-than-expected results. U.S. stock futures pointed to moderate opening losses on Tuesday, coming under some pressure as investors cashed in on recent gains for oil prices. Aluminum giant Alcoa Inc. reported disappointing third-quarter results early Tuesday, which may set the tone for the broader market as earnings season unofficially gets under way.

Dow Jones Industrial Average futures dropped 53 points, or 0.3%, to 18,206, while S&P 500 futures slipped 7.50 points, or 0.4%, to 2,151.6. Nasdaq-100 fell 9.25 points, or 0.2%, to 4,883. U.S. stocks closed higher on Monday as a jump in oil prices drove gains for major energy companies. West Texas Intermediate crude futures pulled back slightly, trading at $51.28 a barrel on Tuesday, hovering near its highest level since July 15, 2015. Oil prices slipped after the International Energy Agency said production from the Organization of the Petroleum Exporting Countries rose to record highs in September.

On Monday, oil rallied on bullish comments from Saudi Arabia's energy minister and Russian President Vladimir Putin. Major oil producers are meeting in Istanbul to try to lay the ground for a deal to cap production. Goldman Sachs warned clients that if a production deal isn't reached in Vienna next month, oil prices could plunge to $43 per barrel. The dollar continued to climb as the market increases its expectations for a December interest-rate hike by the Federal Reserve. The ICE U.S. Dollar Index rose 0.4% to 97.27, from 96.92 seen late in New York on Monday. Expectations for a rate hike at the end of the year also pushed up the yields on the 10-year Treasury to 1.77%, the highest in five months. The stock market is sandwiched between two holidays, with the bond markets closed on Monday and a lot of people away for Yom Kippur tomorrow, we expect it to be a somewhat quiet day. The overwhelming theme for now is that there is going to be a rate hike in December. This is starting to make life difficult for U.S. stocks, but hopefully earnings season will jolt the S&P 500 out of its current grinding range.

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.

Dec '16 E-mini S&P Daily Chart

Source: RJO Futures PRO

Equities Chart

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