RJO FuturesCast

Now that gold has managed two consecutive closes at roughly $1,840, we can look at $1,830 as a good support level. A minor dip or correction must hold above $1,830 on a closing basis for this rally to continue. It’s no coincidence that gold has had a very strong rally while stocks have had a really bad week. Gold has been unable to find its legs recently, despite all this inflation. I caution you to closely monitor “outside” markets. If we continue to see weakness in stocks, we should continue to see strength in precious metals. The money has to go somewhere! Gold prices must be able to penetrate $1,850 and hold several closes above $1,850 before I get more confident about this rally. I think a bottom is in, but I’m not convinced that gold doesn’t move back to that sideways range.

Silver may assume a leadership role in this precious metal rally, as silver is in my opinion, severely undervalued. Even more so than gold. All precious metals are undervalued.

Oil prices are coming off seven-year highs following some profit taking as short-term supply disruptions have continued to underpin prices. On Tuesday, a fire temporary stopped flows through a pipeline in Iraq’s Kirkuk. In addition, an attack on Yemen’s Houthis on the UAE heightened geopolitical risks. The market was also supported by reports that OPEC+ fell 800k barrels per day below its December target. The IEA upgraded their demand forecast for 2022 while noting that the oil market could be in a surplus for the first quarter. Oil inventories rose 515k barrels for the first time in eight weeks with stocks now down 72.75 million barrels below year ago levels and 38.10 million barrels below the five-year average. Oil volatility (ovx) has rebounded into the upper mid-upper 40s with the market remaining bullish trend with today’s range seen between 77.03 – 87.24.

On January 7^th I advised traders on the following “Today I would advise traders to watch for another breakout” “I believe short term aggressive levels are $6.11 ¾ on the upside and $5.89 ¾ on the downside and the medium term breakout levels are $6.18 ½  upside and $5.83 ½ on the downside.” Let’s take a look at what has happened since last Friday (see both charts below). As you can see the medium-term downside breakout level held at $5.83 ½ with lows coming in at $5.85 ¼ before seeing moves this week to a high of $6.17 ¼ which was reached today after seeing a small inside day yesterday. With the break higher today the market has triggered a short-term buy (for aggressive traders) in my playbook. As I said last week, I still remain bullish and traders should watch the medium term breakout levels for market direction.

The “big picture” numbers remain the same and probably will for some time. I firmly believe a break below $4.96 could give the bears control of the market and a break above $6.39 ½ on the upside may have enough bulls behind it to propel corn to all-time highs. There are several minor areas of support and resistance inside this range that can help with short-term market direction if violated. Call me directly at 1-800-367-7290 for more in-depth discussion on these numbers and to discuss trading strategies specific to your situation.

I would suggest using an option strategy to manage your futures position risk or an outright option strategy. Implied option volatility has come down quite a bit from its most recent highs mainly due to the consolidation and tighter trading ranges. I have 25-years of grain market experience, feel free to call or email with any questions you may have.  Be sure to check out my archived weekly grain market insight articles posted on our website.

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We have seen a wild ride the last few weeks in the March 10-year note, with yields rising to a two-year high overnight to 1.90%. The rise is largely driven by continued strong readings from the CPI, strength in oil, and hawkish comments out of many of the Fed governors. Additionally, many of the Fed speakers are now nervous that the Fed is behind the curve and some are calling for four rated hikes in 2022.    That is an aggressive call and I’m not sure that will come to fruition, but I do believe we see at least two hikes. So, going forward, as hikes are now being priced in and we have seen yields in the 10’s spike from around 1.65-1.90%, where do we go from here? I believe the market still has room to go lower and yields gravitate toward the psychological level of 2%, but currently the market is oversold, and I believe the market is quite short, so a short covering rally is certainly possible. Another important development that is starting to gain momentum is the build up in troops by Russia near Ukraine. I am certainly not suggesting that Russia will invade but the fact that there is a significant build up in troops near the border could bring a safe haven bid into treasuries at any time.

In our constant pursuit of objectively managing risk of directional biases and exposure, we're always on the lookout for momentum failures needed to stem trends.  Following early-Jan's continuation of the secular bull trend, we were able to identify risk levels the bull needed to sustain gains above to maintain a bullish count.  In 06-Jan's Technical Blog we introduced a peak/correction/reversal threat directly on the heels of 05-Jan's bearish divergence in very short-term momentum.  This mo failure defined 04-Jan's 4808.25 high as one of developing importance from which non-bullish decisions could be objectively based and managed.

More than two weeks on and following Tue's break below 10-Jan's 4572 initial counter-trend low, those early and minor threats to the bull have reached at least intermediate-term levels as the market has lost 6%.  Now, "down here", we're on the lookout for elements needed to defer or threaten a broader peak/reversal process and give odds to the ultimately bullish prospect that this month's 6% decline is a 3-wave and thus corrective affair that might re-expose the secular bull trend.

The 240-min chart below shows that, thus far at least, the decline from 04-Jan's 4808.25 high to yesterday's 4514 low is only a 3-wave structure as labeled.  But while a recovery above 12-Jan's 4740 corrective high remains required to CONFIRM such a bullish count, this chart also shows the developing potential for a bullish divergence in very short-term momentum.  This divergence will be considered CONFIRMED to the point of non-bearish action by short-term traders on a recovery above yesterday's 4603 corrective high.  Per such, this 4603 level is considered a mini risk parameter, the recovery above which will define yesterday's 4514 low as one of developing importance and a new mini risk parameter from which the risk of non-bearish decisions can be objectively based and managed.

Can we conclude the end of the correction by such piddly strength above 4603?  No, no more than we could conclude a massive reversal lower by 05-Jan's piddly failure below 4747.  But such 4603+ strength could be pursued as a start of a recovery that would then require further, sustained, trendy, impulsive gains above 12-Jan's next larger-degree corrective high at 4740 needed to resurrect odds of the secular bull trend's resumption.  But most importantly, 4603+ strength would identify some semblance of early strength and bull potential from that 4514 low that would then serve as the objective risk parameter to any bullish decisions.

On a broader scale and until the market recovers above at least 4603 and preferably 4740, a broader peak/correction/reversal threat remains intact ahead of what could be protracted losses.  Waning upside momentum since early-Nov and historically frothy levels in the Bullish Consensus (marketvane.net) measure of market sentiment/contrary opinion remain intact as threats against the major bull market.

Interestingly however, the American Association of Individual Investors (AAII) Bullish Sentiment Survey and Bull-Bear Differential have both eroded to historical lows that, in the past, have been associated with the ENDS of corrections and starts of the resumptions of the secular bull trend.  This factor will become increasingly important in support of a resumed long-term bull trend upon proof of strength in the contract above at least 4603 and especially above 4740.  Until the market arrests the clear and present and at least intermediate-term downtrend with strength above levels like these, it would be premature to conclude the end of a correction or reversal lower.

These issues considered, a bearish policy and exposure remain advised with a recovery above at least 4603 and preferably 4740 before a bullish policy can be reconstructed. In lieu of such strength and especially if this market breaks yesterday's 4514 low, further and possibly steep losses remain expected.

The next move is likely “up”, and perhaps very aggressively.  Let me get that out of the way first, but do not let that fool you. We have a real problem. The problem lies within the Fed and them not taking action sooner, and now find themselves in a state of impotence. With CPI at 7% and oil and gas prices on a steep incline, the Fed has no choice but to follow through with the full taper and at least 1 rate hike. The caveat here with regards to rate hikes effectively staving off higher oil and gas prices is …. *drumroll* …. war with Russia. Our president on Wednesday essentially “Greenlighted” a Russian incursion….don’t believe me, rollback the tape. Sec. Blinken meets in Geneva with Russia, at which Russia will make demands, we won’t comply and we could be on the brink of a major conflict because of it. The Fed will stay their course until interest rates once again collapse, and if you’re not buying that, I don’t care - this is how it happens - the bond market knows, and it’s of our assessment the short end of the curve has or is very close to fully pricing in current Fed policy . So by the time the Fed lifts off with its first rate hike in March, I fully expect yields to be moving backwards by then. That’s it, that’s the real.

Yesterday we saw our 3^rd weekly increase in US Jobless Claims, so we’ll be keeping a watchful eye on the Jan employment data come early Feb. – and so will the Fed.

Next Wed: FOMC Policy Meeting

That’s all I’ve got today,  we’ve given adequate warnings of Scenario 4 enough – now it’s playing out – Commodities are likely the next shoe to drop.