RJO Futures Website

October 25, 2016

Volume 10, Issue 22

Feature Article

Upcoming Webinars

Upcoming Webinars

 

Trading Metal Futures

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Wednesday, October 26 at 4 p.m. CT

In this session you will learn:

  • Metals and metal futures basics
  • Benefits of trading this asset class
  • Technical analysis and trading strategy applicable to these markets

 

Intro to Futures

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Wednesday, November 2 at 4 p.m. CT

In this session you will learn:

  • What you need to know about futures
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Metals - Gold

December Gold Moves Up, Can it Match October?

Nicholas DeGeorge

In the early morning trade, December gold is still inching up and currently trading at $1,272.4. Gold mostly rose today as the dollar eased from nine-month highs, but increasing speculation of a U.S interest rate hike are still keeping gold prices under $1,300 an ounce. However, the metals have been very interesting, and have put in a nice solid floor as the greenback breaks new highs and holds strong after a US Fed member stated on Monday that we can anticipate a 70% interest rate hike in December.

If we take a look at the daily December gold chart, you’ll clearly see that it has a good probability to rally up to the October 3rd high of $1.322.6 an ounce. First, gold would have to break and close above $1,275.9, which is the high back on October 20th. If it fails, look for a retest of the October low of $1,243.2. I have highlighted all technical levels 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

Has Silver entirely discounted potential December rate hike?

Eli Tesfaye

Front-month December silver is trading $17.77, up 16 cents. The dollar is modestly weak lending a bit of hand to silver bulls this morning. As I have stated in previous eViews, I think that the December possible rate hike by US Fed members looks more like it is getting priced in sooner than later, giving the bulls near term advantage in the absence of some other news.

I tend to pay very close attention to Commitment of Trader with Options Report (COT). It is interesting that when the Non-Commercials and Non-Reportable traders held record long position on Aug 2, 2016 measurement of 113,136 contracts, the price of futures were around trading above $20.40. In the most recent reading on Aug 18, 2016 we see the net long for those two group was 78,463 contracts and the price was around $17.40. Basically, when these two groups on the COT report show an overbought area or record net long position, it would be wise to be on the defensive if you are long, and to look for opportunities on the short side.

From a technical perspective, you can see on the weekly chart below the Dec 2014 lows of 13.60 area to the July 2016 high of above 21.00. The 50-60% retracement is between 17.35 and 16.45. The market looks like it is putting corrective lows if trade holds here. Then we can expect a rebound. In the coming days, we will have a clearer picture of our upside target of somewhere around 20.00. All of this would not be possible of course unless the dollar puts near term top.

A close above 18.00 would probably bring a touch of enthusiasm on the long side. 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

Energies Video Update

Michael Sabo

RJO Futures Senior Market Strategist Mike Sabo discusses the energy futures markets. Energy prices are changing, weather affecting surges. 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.

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Softs - Sugar

March sugar extended sideways leads to higher prices?

Joe Nikruto

This week’s eView commentary finds the March sugar futures marking time after a failed attempt at a downside technical breakout. So far, the high from late September has held, as has the swing low at 22.22. Big demand news has made its way through the wire services in the last few days. Today’s Hightower report highlights not only last month’s increase in Asian demand, but a sugar shortage in Egypt that has caught the attention of traders. Their comment made a point to weigh Egypt’s much smaller size as an importer in comparison to countries like China and India, but furthered the idea that the psychology of more demand and less supply could lead to higher prices for March sugar futures. 

Technically, sugar has been marking time since posting a new high for the move, 24.10, on September 29.  A quick test and hold of the 18-day moving average, followed by a failed attempt at yet another new high, has left sugar trading essentially sideways. The size of the large spec position and volume have both been decreasing so far during the month of October.  A quick look at Reuters Graphics shows that the large spec position has gone from roughly 291,000 the week of September 27 to 267,000 last week. Volume has also been decreasing since mid- September.  I’m not sure I would characterize the price and trade action for March sugar futures as anemic, but I’m also unsure whether it matches the recent strength of the Brazilian Real, or the bullish narrative that has been available to traders via the wire services. 

While this extended sideways action in March sugar futures has left me suspicious, I continue to believe that the path of least resistance is higher and that the market can move high enough to make option spreads a worthwhile endeavor. The March sugar futures chart offers no guarantees, but with the 24k decrease in the large spec position and continued bullish news, it doesn’t take much imagination to see how a new leg higher could materialize. 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

Ideal Weather and Positive Crop Conditions Seen as Negative

The cotton market appears poised to register its sixth consecutive day in the red as ideal growing conditions here in the US continue to help cotton prospects. Texas, one of our main cotton producing states, has been the recipient of ideal growing conditions, and the 10-day forecast doesn’t appear to be deviating from that trend.  Furthermore, yesterday’s crop conditions report confirms what we’ve been seeing with a figure of 48% good/excellent vs. the 10-year average of 44% this time of year. Taking into account the high number of net long positions held by large specs in the market, market participants now have a situation that could be conducive to added selling pressure. From a technical standpoint, we see a bit of a different narrative as the market remains near-term neutral with the longer-term trend remaining positive. So long as the market can remain above the 65.41 low, the positive structure will remain valid and longer term bias will continue to be bullish. Let us not forget that China continues to be a driver in Export Demand figures with cumulative cotton sales coming in at 51.6% of the USDA forecast for the current marketing year.  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

West African Production and Weather Premium

Peter Mooses

The demand news has been bullish from Asia, and is what traders have been waiting for in the supply and demand equation for cocoa. Traders are uncertain about West African output, this data is critical to see where prices headed. The weather in this key growing region supports a higher than expected production output. Traders have been hesitant to jump back in on the long side after the way this market has been trading the past few months. Technically, we have built a channel in the Dec NY cocoa futures, setting us up for a breakout higher - resistant is at 2750, while support has set in at 2675.

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 Continues

Adam Tuiaana

December coffee prices are again pushing higher and higher, holding a long term trend line that has been in place since early May of 2016. December coffee prices are now challenging highs not seen since April of 2016.

As I’ve mentioned in the past few articles, “we’ve been monitoring a potential Head & Shoulders reversal up pattern which can be viewed on the daily chart below”. This pattern has held true, and the top of the head in this pattern is measured at 13785, slightly above the critical low of 13760 from June 27. 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 gave us an upward measuring objective of 15755, which was surpassed with ease on October 18.

Crop stress in Brazil’s key Robusta growing areas, along with a weak forecast of the Vietnamese coffee output, has helped to support coffee prices. A significantly large move today in coffee prices will likely see some correction throughout this week before the next leg higher. The bulls should continue to stay in control.

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

Strong Seasonal Performance

Stephen Davis

We started the week in strong seasonal performance fashion with soybeans up double digits and corn down 3 to 4 cents yesterday. If you listen to my video each week, you hear me talk about soybean and how it is above the 200-day moving average. The bottom line is that the US soybean carryover doubled from where it ended up last year. This soy crop will get bigger still to cover whatever new demand USDA discovers, and soybean acreage will be HUGE in 2017 in our great country USA. Perhaps the bulls need a nasty La Nina to impact South America soybean production. Maybe not. Remember, markets that do not go down on bearish news are not bearish anymore. Remember last spring when soy rallied $3 and blew the doors off the biggest traders in the world? There were a lot of soybeans in the world last spring as well. Stay tuned with us. Follow the money flow and follow the technicals. The hedge funds continue their love affair with soy.

The corn market was estimated at 61% complete vs 62% on average. Last week, the corn market got above its 100-day moving average in impressive form. See chart below. One can argue that the bulk of corn harvest pressure lies ahead. So, considering this is our first 15 billion bushel corn crop, the corn market has been trading pretty well.

The wheat market traded lower overnight on plentiful stocks, a strong US dollar and slowing demand.

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 Soybeans Daily Chart

Soybeans Chart

 

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Agriculture - Livestock

Fed Cattle Futures Close in on Cash

Live cattle futures have swiftly rallied from last week’s contract lows inspired by pre COF report profit taking, and post report reaction to the friendly results. Along the way a few gaps have been created, which I believe will be tested or filled sooner than later.

As noted in my previous post 2 weeks ago, long term value areas sit just beneath last week’s lows around 92-93 (see monthly chart below), and I do not believe we will get there given the swift bounce and strong packer margins. However, technically it is not unusual for charts to retest the lower end of the breakout bar which in Dec would be around 100.

December longs may want to monitor spreads rolling to Feb or April and look for strength to roll. Dec to Feb narrowed to only -0.225 yesterday and -0.300 today. COF report was more bullish deferred but the immediate strength was larger in Dec b/c OI was larger.

We are in an interesting environment for commodity prices in general going into the election. It feels like there is some squaring up and pre-election protection on some commodities. At some point, attention will shift back to debt and the US dollar. The equities and bonds seem heavy, though the charts have not confirmed. Futures traders need to actively manage positions, be mindful of the prop traders’ tendency to break new highs and lows, and swiftly reverse course without upsetting the trend. I mentioned an idea in my last post that would have been helpful to weak longs going into last week.

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 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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Interest Rates

Temporary Bottom in T-Bonds?

Joshua Graves

If we look at the December T Bonds, it appears that a we’ve found a temporary bottom after bouncing off the October 17th low of 162^19. Most investors are familiar with the likelihood of a December rate hike by the fed at around 75%. The question many are asking, has the market already build this bearish news into price of where T Bonds are today? Traders are factoring in a 9% chance of a rate hike happening at the November 1-2 meeting, just a week before Election Day. Something to consider here, why are they waiting? The jobless rate is holding steady around 5%, but inflation is not at the 2% target the Fed would like it to be at. They will most likely wait until December. Boston Fed President Eric Rosengren has made comments that politics around the election are not playing a part in their decision not raise rates, and waiting a few months would not have significant economic impact. There has been no shortage of bearish news for T-bonds while consumer confidence is being reported at 9 year highs. October Market manufacturing PMI data was reported, which expanded at its fastest pace in a year. Finally, reports that employers are adding nearly 178,000 jobs per month this year show significant growth. This is a trend that, although steep, is not likely to continue into the future. A close above 166^0 in the December contract is needed to show a correction back to the upside from a technical standpoint. If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4305or jgraves@fjofutures.com.

Dec ‘16 30yr T-Bonds Daily Chart

Source: RJO Futures PRO

30-yr T-Bond Chart

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Currencies

US Dollar Rallies and Canadian Dollar Slides

John Caruso

The USD continues to extend its multi-week rally, tapping 99.09, its highest level since February.  We’ve seen a host of “hawkish” Fed Governors on parade for the past week and a half coupled with the CME Fed Funds Futures pricing in a 73% chance of 0.25% increase in December.  The ECB and Mario Draghi left the Euro Currency with much to be desired as they failed to extend any additional accommodation and for the most part punted until their December 8th meeting.  The USD vs Euro is now flagging near-term overbought and setbacks along 98.30 support may be warranted in the near term.  Looking ahead this week, we will receive a top tier Durable Goods Orders number out on Thursday (0.2% exp; 0.0% prior), along with our first estimated reading of Q3 GDP (2.5% exp; 1.4% prior) due out on Friday morning.  Furthermore, another big mover in the Currency Complex this week and last, has been the deep slide in the Canadian Dollar (77.035 last Tuesdays High to 74.66 this morning’s low), following a poor read-out on Canadian Retail Sales.  It’s also been mentioned by the Bank of Canada that further unconventional methods of economic stimulus may be needed to stop the downslide of the Canadian economy.  The CAD has now flagged immediate-term oversold and we’d suggest becoming bearish on rallies to 76.00+.

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.

Dec ’16 Canadian Dollar Daily: Drawing depicting topside resistance channel

Currency Chart

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Equities

Stock Index Insight Ahead of Reports

Greg Perlin

U.S. stock futures indicated that Wall Street will see modest gains on Tuesday amid a wave of corporate earnings, including reports from Dow constituents Merck, Procter & Gamble, and Apple after the close of trading. Adding to the mix will be updates from the housing and consumer fronts. Futures for the Dow Jones Industrial Average rose 12 points, or less than 0.1%, to 18,146.00 and futures for the Nasdaq-100 were higher by 9.50 points, or 0.2%, to 4,912.00. S&P 500 futures pared their gain to 2.45 points, or 0.1%, at 2,146.75. 

Gains Tuesday would follow a win for Wall Street on Monday, which saw a flurry of merger announcements, including the planned purchase of Time Warner by AT&T. The S&P 500 closed up by 0.5% and is now roughly 2% below its all-time high set on Aug. 15. Dow industrials closed up 77 points, or 0.4%, and the Nasdaq Composite tacked on 52 points, or 1%. 

The S&P market began the week on a positive note with M&A activities. Positive earnings and exceptional data from the Eurozone and U.S., all boosting appetite to risk equity bulls. We would need to see positive earnings to resume this week, and for the tech sector to take the lead from the financials with the two largest publicly traded companies, Apple and Alphabet. Alphabet's report is set for Thursday, and Apple is due late Tuesday. Analysts expect to see Apple report earnings at the high end of their fourth-quarter forecast. 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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