RJO FuturesCast

Uncertainty and tensions spiked in the Middle East with the U.S. airstrike overnight which killed an Iranian military leader. The February gold contract traded up to a high of 1554.0 in the overnight session and will likely close positive for the fourth week in a row. Earlier this week we saw weakness in Chinese gold imports for the month of November as well as a decline in India’s gold imports last year. The short-term trend in the gold market remains higher since it broke resistance of 1490.0 on December 24^th. Momentum studies are approaching overbought levels which could indicate a pullback. A close below 1513.0 is needed to reverse the trend to the downside. Over the past month the gold market has held up well despite continued gains in in the stock market. Any escalations with the Middle East could see a risk off environment with a flight to safe-haven assets.

Oil prices have surged over 4% after a U.S. airstrike killed a high-ranking Iranian military leader, Qassem Soleimani, the Iranian general who led the Revolutionary Guard’s Quds force. The attack heightens geopolitical risk sentiment with fears of retaliation from Tehran on Middle Eastern energy infrastructure. This comes as tensions have been building after Iran backed Iraqi’s raided the American embassy earlier this week to protest U.S. airstrikes. The trade, now raised with geopolitical risk premium, will be looking ahead to oil demand growth as well as the current deal between OPEC and its partners. OPEC and its allies had agreed to a production cut of an additional 500,00 bpd to 1.2 million bpd that extends through March. Increased U.S. shale output has helped the U.S become the largest oil producer, doubling its oil production to 12.66 million bpd over the last decade according the EIA. Expectations, however, are for slower U.S. production growth to 1.1 million bpd down from 1.6 million bpd the year prior in 2019. With the recent spike in prices, the market is signaling immediate term overbought with today’s range see between 60.38 – 64.

March cocoa futures have rallied this past trading week as we leave 2019 and enter 2020. After the new year, the contract continued the move higher back towards 2550. The market has been supported by the recent positive global sentiment. Equities continue to make all-time highs which is carrying over to most commodities.

Cocoa is also finding a positive tone in the near-term demand of the soft. With the Euro and Pound moving higher, cocoa has followed. The Pound has climbed since the UK election. If demand can continue to grow out of Europe, even in the short-term, prices should be able to test 2600 by next month’s contract roll.

Tightening supplies have sparked a strong bull ran in March coffee prices over the past month, but we are likely to see a temporary selloff back down to the 122 level in the very near term. I am still very much bullish due to the fundamentals of March coffee, but such strong buying over a short period of time is likely to be met by profit taking and new longs may step aside for the time being. Our friends at The Hightower Group shared that “In spite of the year-ending pullback, coffee prices climbed more than 25% value during 2019 and rallied more than 50% above their 14-year lows posted last April.” This is significant for a market that has been in a major bear trend for such long period of time. We have broken above the 142245 high from October of 2018 and we will likely continue in this direction, after this pullback has taken place.

From a technical perspective, we have cleared several resistance areas, including 14225, but in the near term we should see some continued long liquidation, and the 122 level is critical for holding support. With momentum and volume at high levels, the bull camp should take a breath and re-join once the 122 level has been reached.

Posted on Oct 14, 2022, 07:42 by Dave Toth

On the heels of mid-Sep-to-early-Oct's steeper, accelerated, 3rd-wave-looking recovery, the past week-and-a-half's boringly lateral chop is first considered a corrective/consolidative event that warns of a continuation of the uptrend that preceded it to new highs above 04-Oct's 891.0 high.  This count remains consistent with our broader base/correction/recovery count introduced in 13-Sep's Technical Blog following that day's bullish divergence in short-term momentum above 07-Sep's 809.5 minor corrective high detailed in the hourly chart below.

The important takeaway from this month's lateral, sleepy price action is the definition of Wed's 851.5 low as the end or lower boundary of a suspected 4th-Wave correction.  A failure below 851.5 will confirm a bearish divergence in daily momentum and defer or threaten a bullish count enough to warrant non-bullish decisions like long-covers.  A failure below 851.5 will not necessarily negate a broader bullish count, but it will threaten it enough to warrant defensive measures as the next pertinent technical levels below 851.5 are 13-Sep's prospective minor 1st-Wave high at 813.8 and obviously 08-Sep's 766.0 low.  And making non-bullish decisions "down there" is sub-optimal to say the least.  Per such, both short- and longer-term commercial traders are advised to pare or neutralize bullish exposure on a failure below 851.5, acknowledging and accepting whipsaw risk- back above 04-Oct's 891.0 high- in exchange for much deeper and sub-optimal nominal risk below 766.0.

On a broader scale, the daily log scale chart above shows the developing potential for a bearish divergence in daily momentum that will be considered confirmed below 851.5.  This chart also shows the past month's recovery thus far stalling in the immediate neighborhood of the (888.0) Fibonacci minimum 38.2% retrace of Apr-Sep's entire 1128 - 766 decline).  COMBINED with a failure below 851.5, traders would then need to be concerned with at least a larger-degree correction pf the past month's rally and possibly a resumption of Apr-Sep's major downtrend.

Until and unless the market fails below 851.5 however, we would remind longer-term players of the key elements on which our bullish count is predicated:

• a confirmed bullish divergence in WEEKLY momentum (below) amidst
• an historically low 11% reading in out RJO Bullish Sentiment Index and
• a textbook complete and major 5-wave Elliott sequence down from 29-Apr's 1128 high to 08-Sep's 766.0 low.

Thus far, the market is only a month into correcting a 4-MONTH, 32% drawdown, so further and possibly protracted gains remain well within the bounds of a major (suspected 2nd-Wave) correction of Apr-Sep's decline within an even more massive PEAK/reversal process from 17-May's 1219 high on an active continuation basis below.

These issues considered, a bullish policy and exposure remain advised with a failure below 851.5 required to defer or threaten this call enough to warrant moving to a neutral/sideline position.  In lieu of such weakness, we anticipate a continuation of the past month's rally to new highs and potentially significant gains above 891.0.

March corn appears to be setup for a breakout coming soon. Overnight news has caused some confusion as to how this will impact phase one of a trade deal. Managed money is holding a net short position of 85,000+ contracts while open interest remains low. On top of the potential short covering rally, the market may also need to absorb new buying from index funds. The Jan USDA supply/demand update is likely to show lower production and higher demand, with the wild card still being that China may buy more corn. Forecasts for drier weather in Brazilian and Argentine corn growing areas through mid-January.  In addition, corn continues to find support from the prospect of increased Chinese imports this year.

Corn fundamentals are shifting more in the favor of the bull camp.  Today, resistance comes in at 393 and 395 with support coming in around 389 and then 386 below that.

U.S. dollar futures traded nearly 40 points higher on the first trading day of the new year. It appears that the oversold condition is being corrected, however the overall pattern in the dollar index is still extremely bearish. The Federal Reserve’s repurchase package is clearly pressuring the greenback as lower highs and lower lows take shape on the chart. The euro holds the most weight against the dollar index, constituting 58% of the weighing followed by the yen at 14%. Therefore, I believe these two currencies have the most to gain should the sell-off in the dollar continue. The daily chart pattern of the euro indicates a bottoming process is in place. President Trump is set to sign the phase one China deal on January 15^th, which could help support the dollar. Furthermore, US interest rates remain more attractive relative to other countries. So the dollar will likely put up a fight before moving significantly lower, but the momentum is adamantly negative at the moment.

As we enter 2020, treasuries, including the lead bond, the 10-year note is up 11 ticks at 128.25. Stocks opened higher as well as the S&P 500 hit a high of 3251.75 but failed to take out the contract high at 3254 which was hit on Dec 27. My belief is that treasuries will find good bids early in the first quarter on continued uncertainty with trade issues from China. Just because “Phase One” will be signed and delivered, there will still be obstacles going forward as China is very reluctant to budge on futures demands from the U.S.  

Economic news around the globe overnight was somewhat strong as many countries reported decent PMI numbers and, in the U.S., we saw the Markit PMI come in a tad weaker. Looking at technicals in the 10-year note, 12829 is the 40-day moving average and 129-02 is the 50-day moving average. If the note clears those levels on a closing basis, look for the market to attack the 100-day moving average at 129-31. The remainder of the week in terms of the economic news is light with the highlight next week comes the monthly employment number which comes out next Friday. 

U.S. equity futures are under pressure Friday morning after the assassination of top Iranian general, Qassem Suleimani, by American drones. Iran’s supreme leader vowed “severe revenge” against US forces. The commitment of traders’ summary reported non-commercial traders adding over 56,000 contracts to the long side of the S&P as of Monday, taking the overall position net long and not yet overbought. Meanwhile, the index is 4% higher since the beginning of December and finished 29% higher for 2019. I believe the market is stretched at these levels, so any escalation with Iran will likely cause further stock market selling. Adding to downside pressure is a large discrepancy between corporate earnings and index levels. Lastly, the melt-up in equities goes together with the repurchase operations coming from the Fed. This is pushing markets higher on the back of increased dollar liquidity, instead of positive economic data.

Posted on Nov 08, 2022, 07:51 by Dave Toth

In Fri's Technical Webcast we identified a minor corrective low at 2.6328 from Thur as a mini risk parameter the market needed to sustain gains above to maintain a more immediate bullish count.  The 240-min chart below shows the market's failure overnight below this level, confirming a bearish divergence in very short-term momentum.  This mo failure defines Fri's 2.8172 high as one of developing importance and a parameter from which very short-term traders can objectively base non-bullish decisions like long-covers.

Given the magnitude of the past three weeks' broader recovery however, this short-term momentum failure is of an insufficient scale to conclude anything more than another correction within this broader recovery from 26-Sep's 2.1877 low.  Indeed, overnights failure below 2.6328 only allows us to conclude the end of the portion of the month-and-a-half rally from 31-Oct's 2.4822 next larger-degree corrective low.  2.4822 is the risk parameter this market still needs to fail below to break the uptrend from 18-Oct's 2.3526 low while this 2.3526 low remains intact as the risk parameter this market needs to fail below to break the month-and-a-half uptrend.  From an intermediate-to-longer-term perspective, this week's setback falls well within the bounds of another correction ahead of further gains.  This is another excellent example of the importance of technical and trading SCALE and understanding and matching directional risk exposure to one's personal risk profile.

The reason overnight's admittedly minor mo failure might have longer-term importance is the 2.8172-area from which it stemmed.  In Fri's Technical Blog we also noted the market's engagement of the 2.8076-to-2.8159-area marked by the 61.8% retrace of Jun0-Sewp's 3.2758 -2.1877 decline and the 1.000 progression of Sep-Oct's initial 2.1877 - 2.6185 (suspected a-Wave) rally from 18-Oct's 2.3526 (suspected b-Wave) low.  We remind longer-term players that because of the unique and compelling confluence of:

• early-Aug's bearish divergence in WEEKLY momentum amidst
• historically extreme bullish sentiment/contrary opinion levels in our RJO Bullish Sentiment Index
• an arguably complete and massive 5-wave Elliott sequence from Mar'20's 0.4605 low to Jun's 4.3260 high (as labeled in the weekly log active-continuation chart below) and
• the 5-wave impulsive sub-division of Jun-Sep's (suspected initial 1st-Wave) decline

The recovery attempt from 26-Sep's 2.1877 low is arguably only a 3-wave (Wave-2) corrective rebuttal to Jun-Sep's decline within a massive, multi-quarter PEAK/reversal process.  Now granted, due to the magnitude of 2020 -2022's secular bull market, we discussed the prospect for this (2nd-Wave corrective) recovery to be "extensive" in terms of both price and time.  A "more extensive" correction is typified by a retracement of 61.8% or more and spanning weeks or even months following a 3-month decline.  Per such, the (suspected corrective) recovery from 26-Sep's 2.1877 low could easily have further to go, with commensurately larger-degree weakness than that exhibited this week (i.e., a failure below at least 2.4822) required to consider the correction complete.  Indeed, the daily log chart above shows the market thus far respecting former 2.6185-area resistance from 10-Oct as a new support candidate.

These issues considered, very shorter-term traders have been advised to move to a neutral/sideline position following overnight's momentum failure below 2.6328, with a recovery above 2.8172 required to negate this call, reaffirm the recovery and re-expose potentially significant gains thereafter.  For intermediate- and longer-term players, a bullish policy and exposure remain advised with a failure below 2.4822 required to threaten this call enough to warrant neutralizing exposure.  We will be watchful for another bearish divergence in momentum following a recovery attempt that falls short of Fri's 2.8172 high that would be considered the next reinforcing factor to a count calling that 2.8172 high the prospective end to the month-and-a-half 2nd-Wave correction.  In lieu of such, a resumption of the current rally to eventual new highs above 2.8172 should not surprise.