RJO Futures Website

November 22, 2016

Volume 10, Issue 24

Feature Article

Webinar: Introduction to Options on Futures - Register Now!

Wednesday, November 30, 2016 at 4pm CT

Intro to Options Webinar

In this webinar we talk about the basics of options, including:

  • The unique features of trading options
  • How to understand options terminology
  • Discover how options are priced and learn to read option quotes
  • How to trade the rising and falling markets using options

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Metals - Gold

Gold Hanging on to the $1,200 Handle

Nicholas DeGeorge

In the early morning trade, gold is slightly up and currently trading at $1214.4 an ounce. February gold is currently holding onto last week’s lows, largely due to the dollar pulling off its high. There have been reports of a pick-up in physical demand from Asia, along with a rise in open interest, which should give the bull camp some hope for higher prices. However, the world’s largest gold ETFs holding fell by 6.52 tonnes Monday, which signaled the 8th straight day in decline for the fund.

If you look at the daily February gold chart, you’ll see that gold is trying to hold onto the $1200.0 an ounce handle. If it could hold onto this handle, we could see a retest of last week’s high of $1236.1. If it could break out from this level, look for a rally up to the 200-day moving average of $1287.3. If gold cannot hold this handle, look for a sell off to around $1175-$1150.

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.

Feb ’17 Gold Daily Chart

Source: RJO Futures PRO

Gold Chart

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Metals - Silver

Silver weekly chart suggests more weakness?

Eli Tesfaye

The relentless strength in the U.S. dollar inflected severe chart damages in precious metals across the board, and silver is no exception. With the market anticipating a potential rate hike in the December FOMC meeting, silver is probably poised to retest the psychological support of $16.00. Other news that impacts the silver market was the recent announcement by Indian Prime Minister, Narendra Modi, that they will take all existing 500 and 1,000 rupee notes out of circulation. India’s effort to reduce the counterfeit rupee will likely have a near-term unintended consequence of reducing the liquidity needed in the season where Indians purchase gold and silver.

From a technical perspective, the weekly chart attached below poised to put a $16.00 level to test. It is getting increasingly difficult to put a bullish case for silver until trade moves above $19.00 levels. Per close bases, front-month December silver contract is trading below its 200 day moving average.

As I stated in pervious eViews, I’m still cautiously bullish on silver with the understanding that there is a lot of unknown with President Elect-Trump’s policies, and further outlook on the U.S. economy potential volatility. Volatility does bring 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.

Feb ’17 Silver Daily Chart

Source: RJO Futures PRO

Silver Chart

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Energies - Crude Oil

Crude oil – bullish? Wait bearish. No, maybe bullish?

Michael Sabo

Since the last eView video on crude oil, the market continues to be up for grabs. We have seen the market look bullish, then the “fundamentals” shift to look very bearish, and then shift again to look bullish. Through all of this, the oil stockpiles continued to build and the US dollar continued to strengthen. So what do we really think is going on? I continue to discount the OPEC news of a production cut/freeze and believe that they are less of a major player in the oil market than they think they are. Don’t get me wrong, they still seem to have the ability to briefly influence the market, which is typically short-lived until the true fundamentals take over. With the current stocks of oil we have, coupled with a strong US dollar, I would remain skeptical of any rallies in the market. With a shortened holiday week trading may get quiet. Be sure to watch tomorrow’s EIA Report for possible short-term market direction. 

Short-term technical indicators are starting to look overbought in my opinion, and the market may be ready for a pullback. I think the market looks poised to trade in the $40 to $50 a barrel range for some time. Overall, at this price level I remain cautiously bearish but would recommend waiting to see the market enter a consolidation phase before entering futures positions, basically play the breakout. For option traders this may be the time to explore some ratio put spreads or put butterfly spreads to keep costs and risk in check. 

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.

Jan ‘17 Crude Oil  

Source: RJO Futures PRO

Crude Oil Chart

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Energies - Natural Gas

Cooler Temperatures Means Turning Up the Heat on Natural Gas Prices

Dan Hussey

Since our last eView, December natural gas futures have bolstered the start of a nice recovery. Overall, a fundamental lack of demand due to warmer than average fall temperatures has resulted in a retest of the support area in the 2.450 to 2.600 range. Recent drops in temperature in North America, and a forecast for a colder than average winter, have likely spurred speculation that there may be an increasing demand in coming months. Last week’s EIA report saw a drop in natural gas stocks, with prior measurements of 54 bcf reduced to 30 bcf on 11/17. This could be early indication of homes “turning up the heat” and we will be watching to see if this trend continues into tomorrow’s report.

From the technical perspective, the price of December natural gas futures has followed our prior eView’s analysis pretty closely. After trading to find recent lows at 2.546, which was highlighted in the last eView as the 2.618 to 2.450 prior support range, the market has rallied back to test the 3.00 handle.  The bulls have proven supportive, and defending, of prior lows and the price band from 2.450 to 2.600.  The recent rally is now testing prior support as resistance into the 3.00 handle, and has the 50% Fibonacci retracement just above at 3.147. Look for sellers into the 3.00 to 3.147 area, as bears will be defending this price band to try and take back over price action and return December natural gas to its lows.

In my opinion, the test of 2016 lows and failure of bears to break through this level may be an early indication of a larger range being set up for the price of natural gas futures. Confirmation of this range would occur with a continuation of the recent rally to test above 3.200. This 3.200 price level comes from the 61.8 Fibonacci retracement line, and would indicate sellers’ inability to decisively control the market. In the near-term, selling opportunities into the 3.147 resistance should use stops above 3.200.  Those that are long have favorable odds of continuation in this rally to above 3.100, and those that would like to be buyers should look for additional confirmation of a turn and buy dips against the 2.546 lows.

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

Dec ’16 Natural Gas Daily Chart

Source: RJO Futures PRO

Natural Gas Chart

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Softs - Sugar

March Sugar Futures Remain Under Pressure

Joe Nikruto

This week’s eView comment on March sugar futures finds a market under pressure and suffering from a lack of fresh bullish fundamentals. How does the old adage go? “You have to feed a bull market once a day but a bear market only once a week.” The commodity trading funds have done their part and let go of almost 80k or more contracts since their peak in September. The pressure from the funds combined with a well discounted bullish narrative has left the March sugar futures contract on the underside of the 50-day moving average since the end of October. Two attempts earlier this month to surmount the 50-DMA were thwarted as the funds headed for the exits and established new short positions. Both the intermediate and longer term trend follower should be firmly entrenched in short positions at these price levels. As it stands there are still over 200k contracts remaining on the long side for the fund category. Will Chinese interest in lower priced sugar arrest the slide? There was mention this morning in the Hightower comment that the market is looking for production challenges in Thailand and India. Will the remaining funds ultimately be forced to capitulate at even lower prices? So far, this move has done a very good job of chopping into what should have been solid technical support. The range of the sideways trade from June to September is 21.25 to the high side and 18.85 on the low side. The March contract has moved through this area like a hot knife through butter. It is difficult for me to let go of the bullish narrative that involves continued stout demand from China, and production that is not keeping pace from everywhere else. As I wrote this note the March sugar futures dropped 30 points in 30 minutes, so letting go is likely to get easier. Like I mentioned during our last visit, the 50-day moving average serves as a great line in the sand. That line is now 2 full points overhead and the market is likely due to see a pullback in that direction. The 18-day moving average comes in at 21.39 and a test of this area will be a good sign post as to the direction the sugar market should take into 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.

Mar ’17 Sugar Daily Chart

Source: RJO Futures PRO

Sugar Chart

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Softs - Cocoa

Cocoa and the Holiday Trade

Peter Mooses

March cocoa appears to have reached a low on November 17th at 2358 – since then, the market has recovered almost 100 points. Is this a reversal? That has not been proven yet. 2490 needs to be broken to affirm. Demand is improving gradually, and technically the market did find support. Total port arrivals reached 387k tonnes vs 463K tonnes last year, so arrivals are well behind last year’s numbers. Over the coming weeks, West African weather could be a deciding factor for prices. With the drier season coming, production numbers may not be as good as traders are anticipating which could continue to help the recovery. With the Thanksgiving holiday on Thursday and shortened trading hours Friday, expect volume to be lower. Traders will set their sights on production numbers and weather premium over the next few weeks.

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

Major news slammed coffee prices last week, as the Hightower Group reported “Brazil’s instant coffee makers are abandoning a plan to bring back beans stored in other countries”. This of course means that there may be adequate supply for Brazil, and adds pressure to coffee prices.

In addition, we’ve seen tremendous strength in the US Dollar which has put additional pressure on coffee prices.

It now appears as if December coffee prices were able to hold support at the critical 162 level, and some consolidation is underway. Near term support will be the last corrective low of 15950. If prices violate the 159 area, we may see a reversal in place, as we are now observing a potential head and shoulders reversal down pattern.  For the time being, traders should step aside to monitor the 159 level, and look to step in on the short side if this area is violated.

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

Soybeans Headline Markets as Corn Comes to a Close

Stephen Davis

CME Ag markets will be closed on Thursday for the Thanksgiving holiday, and will have an early close on Friday at 12:00 PM CT. There will not be overnight Globex trade on Thursday, with Globex opening on Friday at 8:30 AM CT, and closing at 12:05PM CT. Export sales this week will be released Friday morning, while the CFTC COT data will be delayed until next Monday.

The soybean complex finished the overnight session with minimal price changes, while soybean did see an overnight range of 10 cents/bushel. Yesterday’s gigantic price rally was initially spurred by strong Asian markets, and a surprisingly large Export Inspections report. This is the time of year for soy to rally. Part of this soy rally is a Thanksgiving Friday seasonal rally {up 25 years out of 40}. Corn and wheat price action yesterday was rather disappointing in comparison to the strong gains seen in the soybean complex, marking the different mindsets in those markets as gigantic stocks and expected demand fail to excite.

US corn harvest is basically complete. CZ16 got above the $3.50 level today and this can be a magnet of a strike price for Friday’s option expiration. Corn export inspections were a bit better than last week, and overall corn export demand is strongly ahead of last’s year pace.

Soybeans were the headline leader on Monday. It was not short covering, just a solid bid for soybean all session on the back of strong outside markets. Some technical support was also noted in Monday’s buying interest.

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.

Jan ‘17 Soybean Daily Chart

Source: RJO Futures PRO

Soybeans Chart

 

Dec ‘16 Corn Daily Chart

Source: RJO Futures PRO

Corn Chart

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Agriculture - Livestock

How are the Livestock Reacting to a New President-Elect?

Fed cattle futures filled a gap yesterday on a daily continuation chart at 108.90 and the market took a break from it’s recent spike as the day progressed. While the futures are overbought on short-term charts the weekly and monthly charts do not show significant areas of value based resistance until 117-120 area. The best value support on a daily chart is down at about 104.50.

Last week’s COF report confirmed the recent trend of lower placements and higher marketings both within pre-report expectations. Better cost of gain for feeders and low profitability for feedlots are contributing to the lower placements while hefty packer margins and inventory liquidation are boosting marketings.

Cash fed prices are reportedly being offered a few dollars higher than last week. Futures are trading about par with cash, and given the recent accelerated move higher, will probably need to see some higher cash offers recorded to roll over and target 117-120 in the futures. Some consolidation may be needed absent a stronger cash trade this week.

The broad commodity markets are currently experiencing some post election, pro-economy enthusiasm. I do not believe we can discount the positive effects of a more positive minded consumer. Additionally there is likely a good deal of protective buying by some trade partners ahead of trade reforms or markets anticipating this. As this relates to cattle futures, I believe the latter will inspire the demand needed to “eat” through the higher slaughter.

As mentioned last blog, the two sided fundamentals provides premium sellers on both sides decent support / resistance areas while the strong reversal under 100 provides intermediate and long term traders reason to favor the long side.

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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Currencies

Currencies Video Update

John Caruso

Dollar rallies after election, global markets look to follow. 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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Equities

The Striding Stock Market

Greg Perlin

U.S. stocks continued their march into the record books Tuesday, with major indexes hitting their latest in a string of all-time highs, and both the Dow and S&P 500 topping psychological milestones. The day's gains were broad, with only two of the S&P 500's primary 11 sectors trading lower early. Consumer discretionary names were the biggest outperformers, lifted by retailers. The Dow Jones Industrial Average rose 38 points, or 0.2%, to 18,993, The Dow touched 19,013 early in the session, its first time at that level. Meanwhile, the S&P 500 index added 3.9 points, or 0.2%, to trade at 2,202. The Nasdaq Composite Index rose 19 points, or 0.4%, to 5,388. All three indexes hit new records, as did the Russell 2000 index of small-cap stocks. The index was on track for its 13th straight daily rise, which would be the longest such streak for the index since a 15-day stretch ending in February 1996. Adding to the positive tone, the S&P 500 topped 2,200 at its high of the day, while the Dow crossed 19,000 for its first time ever. Both round numbers are viewed as important moves for market sentiment, though they hold little fundamental or technical value. 

Markets have been in a strong uptrend since the presidential election two weeks ago. Donald Trump's unexpected victory was viewed as a positive for Wall Street, because the president-elect is expected to advocate for policies--including massive corporate tax cuts and financial and environmental deregulation--seen as supportive for economic growth. The post-election narrative is still in place, with investors continuing to focus on fiscal policy and regulatory easing. That's giving the market reason to be optimistic, and it means that the path of least resistance is higher for now. The market is overbought at current levels and is ripe for a pullback, but being able to time the turn may prove incredibly difficult.

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

Equity Chart

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