RJO Futures Website

December 6, 2016

Volume 10, Issue 25

Feature Article

Webinar: Critical Trading Mistakes

Wednesday, December 7, 2016 at 4pm CT

Critical Trading Mistakes Webinar

In this webinar you will learn:

  • How to think in probabilities
  • Finding a proven strategy and believe in it
  • Evaluating moves in the market, not chasing price
  • Managing the emotional roller coaster
  • Trading decisions based on facts not guess work

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Metals - Gold

Can February Gold Get a Bounce?

Nicholas DeGeorge

In the early morning trade, February gold is currently trading slightly down at $1175.4, but it’s trying to rebound off yesterday’s low. Yesterday’s sell-off in the US dollar is the main reason gold rebounded from its lows, but February gold is having a hard time gaining any kind of real momentum to the upside. If interest rates continue to sell off and the dollar continues to rise, then look for gold to possibly make its way down to the $1100.0 per ounce handle.

If we take a look at the daily February gold chart, you’ll clearly see a broken and ugly chart for the bulls. However, yesterday’s sell off was on light volume which could signal a short term rebound back up to $1,200.0. If gold could get some positive risk on news and close above $1,200.0, then look for a rally back up to $1250.0 per ounce, which is pretty much where the sell-off extended itself.

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

Is near-term bear attack waning?

Eli Tesfaye

While the U.S. dollar’s relentless rally has begun to stall against the commodity currencies, dollar denominated headwinds are still a major factor in the broader commodity sector, and the precious metals are no exception.  With the December FOMC meeting just around the corner, and the market anticipating a rate hike as I have emphasize in previous eView’s as well, the key $16.00 physiological support may still come into play.  Other major global news that that impacts the silver market in recent days is the recent Italian referendum, which has the possibility of stalling out ECB’s abilities to provide liquidity to its third largest economy.  On the other side of the globe, India’s recent move to digitizing its currency also has the potential to spark a flight to owning precious metals for security.

From a technical perspective, the March silver futures chart is still in a bearish trend that is poised to test the $16.00 level.  Without a rally and close above the $18.00 handle, it’s very hard to make a bullish case from a weekly perspective.  Dialing down to the daily chart for March silver futures however, in my opinion, the start of a bottoming process has begun and we may see a rally back to the $18.00 area with a daily close above the $17.00 handle.

Since the last eView on November 22, the silver market has behaved quite in line with expectations, and put in what could be the start of the bottoming process mentioned then.  I am still cautiously bullish on silver, with my reservations coming from the larger weekly timeframe, where our chart is still calling for more downside.

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.

Mar ’17 Silver Daily Chart

Source: RJO Futures PRO

Silver Chart

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Energies - Crude Oil

More OPEC, More Oil Rigs, and How to use Them

Michael Sabo

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

Large Declines in Natural Gas Inventories Spur a Fundamental Rally

Dan Hussey

January natural gas futures have continued their rally, entering the 4th week of strength since its 2.721 lows in mid-November.  With cooler temperatures setting in for North America, the fundamental picture is firming up for the seasonal trend of a rise in demand for Americas #1 home heating solution.  The rise in demand for natural gas is confirmed by last week’s EIA inventory report, which saw the largest drop in natural gas reserves since March 10.  The EIA reported a net drop of 50 bcf on 11/25 to 3,995 bcf and has begun the drawdown phase of its annual cycle.  Stocks are currently 0.6 percent above last year at this time, and gas in storage remains above the 5-year historical range for the current period.

On the technical side, January natural gas futures have seen their first test and rejection of the 3.675 prior highs from 10/14.  The bulls are still in control at the moment, and will likely continue trying to break above the 3.700 handle in the near term.  If January natural gas price is able to rise and close above the 3.675 level, traders can look for continuation towards upside 100% Fibonacci extension targets which currently measures at 3.897 for the January natural gas contract.  The 100% extension is the equal measurement of the February 2016 lows to October 2016 highs projected from the November 2016 lows, and represents both a target for upside rally and potential resistance above.

In my opinion, January natural gas is a fundamentally driven market with upside technical targets.  The cooler temperatures in the northern hemisphere, coupled with a trending decline in gas stocks, has continued to confirm the seasonal expectation for higher demand.  Stepping back to a much larger time frame suggest that natural gas prices are still historically low, and may be reversing off multi year lows made earlier this year.  Watch for a break above the 3.675 level, and continuation towards the 3.900 100% extension.  Longs can use this level as a technical target, while those looking to be short can use it as a technical entry level into the end of the year.

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.

Jan ’17 Natural Gas Daily Chart

Source: RJO Futures PRO

Natural Gas Chart

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Softs - Sugar

Bearish News Flow and Relentless Downward Pressure Abating?

Joe Nikruto

This week’s eView commentary finds March sugar futures trying to rally out of a swamp of bearish news.  Amid a chorus of overwhelmingly bearish news wire items in the last few trading sessions, March sugar managed to post a new low for the move earlier today.  But, shortly thereafter, sugar began to rally and hasn’t looked back since.  At the time of this writing, March sugar is up 75 and has taken out the 10 day moving average, 19.58, and looks poised to attack the 18-day moving average, 20.17.  As mentioned, wire service news-flow has been skewing bearish recently. Even with large banks calling for renewed investor interest in commodities in general sugar has been dogged by ideas that the surplus in the market will be coming to an end.  Large commercial trading concerns see the surplus eroding in 2017 and ending all together in 2018.  Interesting to note that this commentary is coming fast and furious 8 weeks after the market has peaked.  Also worth noting is talk that Index funds have been offsetting long positions into the year’s end, and producers have been locking in prices with short contracts in further out months.  What COT watchers have noticed, is that long liquidation by a portion of the commodity trading funds who have held positions is beginning to moderate.  From a high 290k long positions down to 154k in the latest COT as reported by Reuters Graphics, the funds have let go of about half of their long position.  Any technically based, trend following funds should now be squarely in the short category.  I also saw an analyst comment across the wire suggesting that demand does not appear to be picking up with the drop in the price of sugar.  The market will be watching closely to see if China and other surrounding economies have been quietly upping their purchases and staying under the radar as the market has been dropping.  I would also consider the possibility that analysts are underestimating the impact of increasing economic activity in the economies surrounding China. If demand picks up there, these markets could absorb increasing supplies of sugar produced in Asia.  One day’s price action typically doesn’t make for a weekly reversal higher. The March sugar futures contract has a few areas to surmount before anyone but the most intrepid knife catchers should get bulled up.  Recent swing high, 20.32, and the 18-day moving average, 20.17, are two areas that will have be taken out before any real attempts at the 50-day moving average, 21.80, can be expected to take place. 

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 Consolidation Continues

Cotton has been a relatively calm trade following the blow-off top earlier this summer.  Despite the relatively neutral tone, each subsequent low in the consolidation range has produced a relatively higher low, which could signal a slight positive bias to the consolidation range.  The market was able to produce a new high in November, relative to the Sep-Oct action; however, prices still remain well below the August peak seen earlier this year.  Valid trading opportunities remain on both sides of the market as selling rallies into resistance and buying dips off of support appear to have merit.  Given the slight positive bias of the market, looking at long opportunities off structural support may prove to be a higher probability trade.  Friday at 11 am CT the USDA WASDA report will be released, and could prove to be the catalyst needed to produce a breakout from the current range.

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.

Mar ’17 Cotton Daily Chart

Source: RJO Futures PRO

Cotton Chart

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Softs - Cocoa

More Downside in Cocoa

Peter Mooses

Over the past two months, we have seen cocoa drop significantly. Ivory Coast crops appear to be better than expected. West African output is up. The March cocoa contract is pushing towards new contract lows. Spec and Fund traders are taking the short side of the trade for now as the COT report showed us last week. Demand has taken a backseat in the equation for cocoa. The market anticipates a boost in demand from Europe due to price levels and the seasonal cocoa trade. Technically, if 2340 is broken, 2325 is next and from there the bottom is unknown at this point. Look for weekly reports to give us guidance on where the market will start the year and if grindings are on pace with past years.

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.

Mar ‘17 Cocoa Daily Chart

Source: RJO Futures WebOE

Cocoa Chart

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Softs - Coffee

March Coffee Weakness

Adam Tuiaana

The strength in the US dollar has put a tremendous pressure on various commodities, including March coffee. Last article we had mentioned news which precipitated a sell-off in recent coffee prices, as the Hightower Group reported “Brazil’s instant coffee makers are abandoning a plan to bring back beans stored in other countries”. This suggests that there may be strong supply for Brazil, and has helped to keep these prices in check.

Technically a textbook H&S reversal down has taken place over the last month, easily fulfilling the pattern’s downside measuring objective of 14395, while continuing to trade comfortably below this area. In addition, coffee prices are now quickly approaching the 14110 critical low from August 17th, and a violation of this area will likely send coffee prices back down to 130. Traders should closely monitor the 141 level, and look to step or add to their short exposure 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.

Mar ’17 Coffee Daily Chart

Source: RJO Futures PRO

Coffee Chart

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Agriculture - Grains

What will it take to Keep Soy Markets Moving Higher?

Bull markets need a steady flow of “new” news to keep prices moving higher, or they will lose steam. The soy complex has been the only real leader in the recent surge in grain prices. Specifically, soybean oil has led all higher as edible oils continue to climb higher overseas. Soybean futures have also added roughly .80 cents of premium over the past two weeks. We have seen very good demand from China and that has triggered some technical buying. So, again, what will it take to keep prices moving higher? I think all the bullish news is out and already priced in. China’s needs have likely been met, and I would expect that their demand will shift to South America. Soybean oil has made a new contract high today and I believe it looks like it’s about to reverse that trend any time now. I also believe that the North American soybean crop is larger than what traders have factored at this point. We won’t have a clearer picture on the crop’s size until January report. Soybeans are currently at $10.55. Corn is at $3.62. Where do you think the acres are going to go?

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.

Jan ‘17 Soybean Oil Daily Chart

Source: RJO Futures PRO

Soybean Oil Chart

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Agriculture - Livestock

Potential Reversal In Play

Fed cattle futures retreated from last week’s highs, but overall the long term charts look strong. As mentioned last newsletter, I believe stronger than anticipated seasonal demand will be the catalyst to rollover the charts targeting the 117-120 front month price targets. On a short term basis, RJO Market Insight pegs last week’s highs as the key level needed to be breached for the short term momentum to turn bullish.

The longer term charts while showing strength also displays a wide range between solid support and resistance. Additionally the firm, but sporadic, cash market may lead to volatile, choppy action.

I think the market has enough margin to pay feeders some margin. In order for placements to pick up enough going into 2017 to keep production high and price competitive, this margin needs to be passed down the chain. Otherwise, the risk is a market in high demand with less supply not even considering supply shocks.

Overall, as mentioned prior, commodity markets are adjusting to an oversold Fall and potentially a pickup in demand. Some of this export demand maybe attributable to foreign buyers anticipating higher costs and a higher US dollar due to anticipated policies of the new administration.

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

ECB in Focus

John Caruso

Following Sunday night’s Italian Referendum vote to decrease the strong hold of government, the market has turned its attention to Mario Draghi and the ECBs monetary policy meeting in Frankfurt, Germany.  Expectations for the ECB to attempt to restrain any financial fallout created from the Italian Referendum have increased.  It’s been widely speculated that the ECB may consider tapering its QE program due to the scarcity of available bonds, however recent developments and sluggish inflation measures (however increasing to a 1yr high, but well behind expectations) may cause Draghi to attempt to extend the plan past its March ’17 deadline and alter the terms of which Euro Zone debt/bonds is to be purchased through its 80B QE program.  The trading environment may suggest a near-term low has been forged in the Euro/USD trade, but the fate and intermediate term-trend of the trade rests upon the widely anticipated ECB meeting this coming Thursday.  On that note, I feel it’s best to expect a continuation of the intermediate to long term downtrend with respect to any adjustments made to Euro Zone Monetary Policy.  Good Luck!

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 Euro Currency

Source: RJO Futures PRO

Currency Chart

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Interest Rates

Will the bond rout continue?

Tarik Husseini

The bond market seems to be stabilizing in the wake of its worst selloff since 2013.  Sparked by the belief that a Trump presidency will bring expansive fiscal and economic policies, treasuries tumbled as the market expects stronger growth and higher inflation to quicken the pace of Fed rate hikes. The Fed meets on Dec 13-14 for a much anticipated FOMC meeting, and is expected to raise the Fed Funds rate 25 basis points.  The probability of a rate hike, as measured by the Fed Fund futures, stand at 95%.

That being said, prominent money managers like Jeffery Gundlach, who had predicted Trump’s victory and a selloff in US treasuries, have stated that the spike in rates is overdone for now, and we could see a bounce.  According to the Wall street Journal, a closely watched relationship between the yield of the 10 year note and the 10 year German Bund traded near the highest level since 1989, leading some investors to sell the bunds and buy the notes. 

Moving forward, I believe rallies should be sold across the long end of the yield curve.  If the Trump equity rally loses steam, and stocks fall, there could be a flight to quality boosting bonds.  However, it should be short-lived.  The story for treasuries remains bearish, both technically and fundamentally.  Near term resistance in the March 30yr bond future comes in at 15200.  Stronger resistance appears at 15400, and may denote the upside of consolidation, and could be a good place to initiate short positions for a longer term down-trend. 

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

30yr Bond

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Equities

Stocks in Focus

Greg Perlin

U.S. stocks on Tuesday struggled to gain traction in positive territory, as investors appeared to take a breather in the wake of a record close for the Dow industrials in the previous session. Also weighing on investor sentiment was a sharp reversal for crude-oil futures that threatens to snap a four-session win streak for the commodity, as doubts about a pact to curb oil output among major oil producers weighs on the industry. The Dow Jones Industrial Average fell 17 points, or 0.1%, to 19,198, retreating from its all-time closing on Monday of 19,216.214 as the rally following Donald Trump's surprise election win subsides somewhat. Monday's moves also came as traders largely shook off the "'no" vote in Italy's referendum the move marked the 19th all-time high for the index logged in 2016. The Dow is up because of a handful of stocks that should do well under Trump's program, so it's basically a rotation process. Now, I think that this rotation process may have peaked. Next week, the challenge will be the Fed. An increase in interest rates has already been discounted and I think that the market might be afraid of getting a statement that is ultra-hawkish, indicating the Fed could be more aggressive next year. In terms of economic data, the Fed is entering its "blackout" period on Tuesday, which means there won't be any central bank speakers ahead of the monetary-policy setting meeting on Dec. 13-14. Markets are currently pricing in a 94.9% probability of a rate increase at the meeting, according to the Fed fund futures contract. We are patiently waiting for next weeks Fed announcement to determine the market’s next big move.

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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