RJO Futures Website

November 8, 2016

Volume 10, Issue 23

Feature Article

Upcoming Webinars

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Wednesday, November 9 at 4 p.m. CT

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Wednesday, November 16 at 4 p.m. CT

In this session you will learn:

  • Key components of a strategy and why you need one
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Metals - Gold

Will America Strike Gold?

Nicholas DeGeorge

In the afternoon trade, December gold is currently trading down $5 at $1274.4. Today, we face the most important election in modern American history, so gold traders/investors alike will be following very closely. Clinton is leading early in the day, and Wall Street is speculating on her winning as well. Therefore, the market feels safe and is selling off from last week’s high of $1308.0. However, if later in the day the data shows Trump pulling ahead, then look for a big rally to last week’s high of $1308.0. I am not here to pick the election, but a Hillary victory could lead to lower gold prices and a Trump victory may lead to a huge rally - at least in the short-term. So if you’re a gold speculator/investor, make sure to follow this election closely.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-453-4494 or ndegeorge@rjofutures.com.

Dec ’16 Gold Daily Chart

Source: RJO Futures PRO

Gold Chart

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Metals - Silver

Silver Shines on Election Day!

Eli Tesfaye

In light of the recent strength of the US Dollar, December silver futures have rallied impressively since their October lows. With all eyes on the US Elections, and then the December FOMC meeting, there is a high probability of volatility and price action into the near future. The unexpected outcomes of both events are sure to entice traders to take a stand in the metals arena, and silver should be no different. 

Since my last eView where I discussed both the 200 day SMA and 17.50 100% Fibonacci extension support levels, December silver has found a solid base and begun a rally to test prior September lows, now as resistance. The 200 day SMA still remains a concrete indicator for the current trend reversal higher, and currently reads 17.59 on the daily chart. Resistance is expected to venture into prior September lows as the market is testing support levels, now as resistance, into the 18.50 area. In a smaller timeframe, support for December silver futures can be expected to fall into the 18.00 to 17.85 price band, where a confluence of prior highs (now support) may come into play.

Going forward, I am cautiously bullish on silver with the understanding that there is event risk being baked into these markets. The US Presidential Election and the December FOMC meeting may produce heightened volatility, which may or may not be the type of market condition suitable for your trading 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.

Dec ’16 Silver Daily Chart

Source: RJO Futures PRO

Silver Chart

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Energies - Crude Oil

Daily Market Update - Crude Oil

Michael Sabo

RJO Futures Senior Market Strategist Mike Sabo discusses the energy futures markets. Election results and OPEC meetings will have impressive effects on Crude Oil pricing.

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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Energies - Natural Gas

Could warmer weather can further pressure Natural Gas?

Eli Tesfaye

December natural gas futures prices have fallen alongside broader energy sector price declines. Gas futures tend to trade low in the end of September and October due to warmer weather, and starts to rise as winter sets in. So far this year, inventories have risen on a speculation that the key gas consuming regions in the U.S. will experience warmer weather. Even though US demand continues to rise, markets are clearly paying more attention to production rather than consumption at this time. The kicker seems to be the warmer than average temperatures across North America, which fundamentally should contribute to a lower than average consumption for the largest household heating source: natural gas.

From a technical perspective, there isn’t too much you can say to support a bullish outlook on natural gas. The recent decline is one of the strongest and most volatile in recent price action. Daily momentum indicators have produced the most extreme levels for the entire year in 2016. There is hope however for bulls to come in and defend prior lows, in a supportive price band from 2.450 to 2.618. Natural gas needs to hold this 2.45 to 2.618 area in order to defend against a continued decline towards the 2.00 handle, and below that all-time lows.

In the near term, and in my opinion, we are overdue for a solid short covering relief rally, and traders should not be surprised if the natural gas market is able to test back towards 3.00 to 3.10 prior lows (now resistance). Natural gas is also nearing historically low levels, and longer-term buyers need to be aware of their overall perspective when initiating positional longs. I believe we can expect bears to maintain control in the short-term, while longer-term traders step in buying natural gas for much longer time-frame horizons.

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 hugging 50-day moving average

Joe Nikruto

This week’s eView comment finds March sugar futures attempting to claw their way back after the recent technical meltdown. Meltdown may be too dramatic a word for a market that retreated less than two and half full points after rallying 10 points or more throughout 2016. Nonetheless, March sugar futures’ reaction to the release of sugar cane crush data that showed Brazilian producers are slowing down seasonally, yet still producing more sugar due to drier cane and higher sugar content, weighed on the market.  More importantly, in my opinion, was the market’s proximity to, and ability to trade below, the previous weekly low, 22.35. Once this low was taken out, commodity trading funds, who have been long sugar futures in varying degrees for most of 2016, began to head for the exits. This almost always brings about a ‘chicken vs egg’ discussion. Did the funds exit because the fundamentals had shifted, or were the fundamentals fit to the technical action that resulted from the actions of the funds? Whatever your personal take, the result is the same. The market was able to take out support at 22.35 and 22.22 then trade down to almost 21.00. This move left a clear 23% retracement on the chart after the market found support near the round number 21.00, which also happened to be squarely in the territory of the top end of the flagging action the market broke out of in September. This makes for unwieldy writing and reading, but if you look at the chart below the technical path is clear. With the bounce off of 21.00, March sugar futures look poised to recapture higher technical ground. Until we see a few closes above 22.28, the 50-day moving average, I believe traders will be on the defensive. The break from last week should have been enough to force many technical traders to the sidelines.

The Nov 1 COT report as shown by Reuters Graphics showed the large spec position at roughly 225k down from the high of about 291k.  Today’s update will be interesting as it will have captured the change in the large spec position from the big down days, October 28, 31 and Nov. 1. My guess is that the change will show that the large spec is not going to be easily driven from long positions in sugar. It may take a move decidedly below 21 to shake the resolve of the large spec and hot money from standing pat in sugar futures. The fundamental backdrop outside of Brazil, producing sugar hand over fist, is that Asian demand remains ever present. Traders should keep their eyes peeled for updates on Chinese movement that shows opportunistic buying on this recent break. While spec money is not easily chased out and China underneath the market, it may very well be that technical breaks will be shallow and short lived. I am starting to see the ‘2018 sugar surplus’ narrative mentioned in wire stories. My bias remains to the upside, but a move below 20.50 will turn the intermediate trend downward.

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 Continues to Consolidate Ahead of USDA

Erik Tatje

After the blow-off top seen in early August, the cotton market has spent the past 6-8 weeks consolidating within a relatively well-defined range. Preliminary expectations for tomorrow’s USDA WASDE report appear to be relatively neutral, with many analysts estimating coming in unchanged vs. last months’ figures. World-ending stocks seem to be the exception with some analysts citing strong production, out of key growing countries such as India, as a reason for slightly higher world-ending stock expectations. That being said, the recent COT report as of Nov. 1st showed that non-commercial traders were net long 90,145 contracts, given strength to an “overbought” argument in prices. From a technical standpoint, the market appears largely neutral with initial range support seen around 66.70 in the December contract. Lower-range extremes can be seen around 65.40, and a confirmed close below this level could open the door to a downside breakout from the current consolidation range. Initial upside structure can be seen from 69.45 – 69.93, with additional resistance seen from 71.54 – 72.17. Traders should continue to focus on price action around the range extremes in order to assess whether or not a new directional trend is emerging.

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

Freefall in Cocoa

Peter Mooses

Cocoa’s chart has quickly changed – for the past few years it has consistently been bullish, but now it tells a different story. A good outlook on new crop due to weather factors and a lack of demand continues to pressure the market. Anticipation of larger than expected production data for this season weighed on the market the past few sessions – prices have hit the lowest levels in 3 years. Currencies, the Euro, and British Pound have hurt demand out of Europe.

Technically, the market is reaching oversold levels. Open interest is also high, and we have a roll to keep in mind as traders exit the December contract and enter March. As moving averages and support levels continue to be broken, traders can only hope 2450 holds for the time being to stop this freefall.

A positive equity market and the election outcome will control the markets the rest of the week.

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

March ‘17 Cocoa Daily Chart

Source: RJO Futures PRO

Cocoa Chart

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Softs - Coffee

December Coffee Recovery

Adam Tuiaana

The saying, “the trend is your friend” continues to hold true while December coffee prices soar higher and higher. We’ve now seen ten out of the last 15 days close positive for December coffee, with huge volatile moves.  A little bit of consolidation and corrective price action took hold since my last article, but once the correction was over, we’ve seen nothing but bullish strength in the price of coffee.

December coffee prices are also holding good support at the 160 level, and the a long term trend line that has been in place since early May of 2016, continues to look untested. December coffee prices are now challenging highs not seen since February of 2015. It truly looks as if this trend has in fact reversed to the upside, and prices may again revisit the 200 level.

Fundamentally, production challenges in both Vietnam and Brazil have certainly helped to support coffee prices. After such a large move over the past four trading sessions, it looks as if a steep correction will be seen before the next leg higher. The bulls should continue to stay in control, but manage risk effectively.

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

Corn May Follow Soybeans Lower After USDA Update

Tony Cholly

The market is bracing for a reminder of the huge stocks situation for this year for the USDA report as the October report showed record yield, record productions, record world ending stocks, and a 29 year high in US ending stocks.  No major surprise is expected as most traders see slightly higher or slightly lower yield, and no major changes in demand. In addition, it seems too early to have much change in South American production. December corn closed ¾ of a cent higher on the session Friday, but this left the market down 6 ¼ cents for the week. For the report on Wednesday, traders see corn yield near 173.2 bushels/acre, as compared with the USDA estimate last month at 173.4. Ending stocks are expected near 2.3 billion bushels as compared with 2.32 billion last month. Fertilizer giant CF industries pegged 2017 corn plantings at 88 million acres, which is down a whopping 6.5 million from this year.  The market is less oversold and we see a bearish report for soybeans from the USDA which could drag the market lower. December corn resistance is at 351 ¼ with 342 ¼ and 337 as key downside support.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or tcholly@rjofutures.com.

Dec '16 Corn Daily Chart

Source: RJO Futures PRO

Corn Daily Chart

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Agriculture - Livestock

Healthy margins may boost wholesale prices

Jeff Gilfillan

As noted on my previous posts, long term value areas sit just beneath October lows around 92-93 (see monthly chart below) and I do not believe we will get there again soon 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. We more or less tested this yesterday. Again, as mentioned last blog, December longs may want to monitor spreads rolling to Feb or April and look for strength to roll. The most recent COF report was more bullish deferred.

I believe we are in an environment that may reward premium sellers that slightly favor the long side on fed cattle futures/options. Fundamentally, beef exports are strong and packer margins are strong however production is up and a seasonal peak is a possibility in the beef market. That said trading the range and respecting the strong bounce under 100 with technical room to move higher is how my desk is basing our current strategies. Contact me anytime to discuss an account focused on livestock futures.

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.

Call 888-861-0382 or email 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

The President and Wall Street

Tarik Husseini

Election Day is finally upon us. Hallelujah! Come tomorrow we should know who our next President will be, and with that a bit more clarity in regards to the Bond market. In a nutshell, Clinton equals weakening bond market and higher yields, Trump equals strengthening bond market and lower yields.  At least in the short-term. This prognosis comes down to one thing: certainty vs uncertainty. Wall Street, and the market in general, feels more comfortable with Clinton being a status quo candidate. Trump is more of an unknown, and thus the uncertainty will translate into less appetite for risk, and a desire for safe harbor. US treasuries are considered one of the safest assets in the world. This mindset was brought to the fore after this weekend’s news that newly uncovered Clinton emails would not lead to any further prosecution by the FBI. With the announcement, the chances that Clinton will be the next President have spiked, the stock market rallied sharply, and the 30yr bonds sold off. 

Moving on to the Fed, consensus is that if Clinton wins the Fed will have cleared another hurdle to raise rates again. As of yesterday, the fed-fund futures showed a 72% chance that the fed would raise rates by December. Those are pretty solid odds, and the overall direction of the Treasury market confirms that the odds are in favor of another hike. This is glaringly illustrated in the downward channel that the Dec 30yr future has been trading in since July. The long-term trend points down. However, technically speaking we are closer to the bottom of the channel than the top, so caution is advised in initiating short positions. Ideally, a short position with futures contracts would be initiated in the 166-167 handle. More aggressive traders could start building short positions in the 165’00 area. Currently, the Dec 30yr is trading 162’04, so it may be a bit early to rush to the short side of bonds as a long term trend trade. 

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

US Stocks Drift Lower on Election Morning

Greg Perlin

U.S. stocks on Tuesday morning have given back some of the gains we saw on Monday from the biggest rally in three months. This is as voters head to the polls in a historic presidential election that analysts say is still too close to call. Trading across global equities markets was moribund as investors wait for the outcome of the presidential and congressional races. The S&P 500 index was down 6 points, or 0.3%, to 2,125, with eight of the 11 main sectors trading in negative territory. Healthcare and financial stocks led the decliners, while defensive sectors, such as telecoms and utilities, are higher.

The Dow Jones Industrial Average slipped 30 points, or 0.2%, to 18,229, while the Nasdaq Composite index declined 14 points, or 0.3%, to 5,152. Biotechnology shares took a hit, with the I Shares Nasdaq Biotechnology ETF IBB down 1.1%.

We are in a political vacuum right now, not just with the White House, but with the Senate and the House [of Representatives]. Markets want checks and balances, otherwise also known as gridlock. When futures lit up soon after FBI Director Comey’s comments, it is clear that the market is pricing in a Hillary Clinton victory. With all three benchmarks scoring their best days since March, stocks staged a relief rally globally. That move came after the Federal Bureau of Investigation said its fresh review of Democratic nominee Hillary Clinton’s emails wouldn’t lead to charges. The S&P 500 and Dow industrials averages jumped more than 2% in response. On Tuesday, however, traders were a bit more cautious as voting kicked off. Markets and polling are looking for a Clinton win today, but the margin in the polling is not sufficient enough to give any sense of comfort. This is reflective of the experience of the Brexit vote back in June, where the polls were suggesting a win for the ‘remain’ side, while the vote went the other way.

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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