RJO FuturesCast

January 24, 2020 | Volume 14, Issue 4

The Markets

Metals - April Gold Needs a Fresh Bull Catalyst×

April gold has been fairly choppy over the past few weeks, following the Iraq attack which pushed gold soaring to 7-year highs above $1600. I think the best way to trade gold right now is based off of two factors. The first, being the technical price action and analyzing how gold prices are moving in conjunction with volume. A big move up or down with rising volume behind it is always something traders should pay attention to. It doesn’t necessarily mean it’s going to continue in that direction, but it is something that adds confidence in the direction. The forever gold bulls out there are clearly watching the corona virus for the most recent bullish news to feed the market. As it appears this virus is quite contagious and is spreading fast. There are now more confirmed cases in the US with this entire situation similar to the start of the SARS virus in the early 2000’s. China is taking all precautions with over 40M people in quarantine areas now.

April gold recently broke out above $1575, with the next target being that all too important $1600 level. On the flip side, look to be short gold with a move beneath $1542. I don’t think a virus from China is enough to push gold up there alone, but should there be anything else that might come out updating the situation for the worse all bets are off. Traders should be using futures options to get exposure to gold when something as potentially serious as a “worldwide epidemic” is in its early stages.

Gold Apr '20 Daily Chart

Energy - Crude Oil Feeling Pain!×

Crude oil is at the lowest it’s been since Nov 2019. The Coronavirus that is making its way around is contributing to the recent crazy sell-off.  The virus is spreading from central China's city of Wuhan to other cities around the world. The world health organization is declaring this a global risk the same as SARS and MARS or worse.

Chinese health officials have lockdown cities, and ministers are advising everyone to stay in or out. Oil demand is taking a hit with supply plenty right now. The technical damage done on the chart shall remain. Any sign of getting a handle on Wuhan virus would probably induce a relief rally.

From a technical perspective, the market is in near-term support; and my analysis is that it would not sell off much more than this unless the economic impact of 2019-nCoV expands around the world at an alarming rate.  Sideways to lower price action most likely be the case here.

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.
Softs - Sugar Market Sees a Reversal×

Mar ’20 sugar futures follow through yesterday’s negative reversal amid crashing oil prices and Coronavirus precautions. Yesterday’s prices poked higher before reversing down closing negative which is a bearish indicator. The weekly chart looks likely to show a negative reversal as well, an even more significant bearish indicator. This Reversal is strongly tied to the washout in crude oil prices as that impacts the demand for ethanol, and ethanol requires sugar for its production. Sugar has been ready for a correction having become overbought from a technical perspective, the viral outbreak and its impact on related markets was simply the catalyst. From a fundamental perspective this market is still very bullish, and prices are currently holding at a support level (14.43), but we are likely to see prices fall further as many take profit and cover their long positions. In my opinion this pullback could be a great bullish opportunity to buy in at a better price, just be patient and let this situation play out a little further first.

 **For a free consultation call my direct line at (312) 373-4875** you may also send me an email at escoles@rjofutures.com

Softs - Will Cotton Recover?×

Mar ’20 Cotton futures started the session down further today but have rapidly recovered and have re-entered the previous consolidation range. It would be a strong bullish indicator on the charts if after having taken out the previous lows the market closes in positive. There appears to be firm resistance and a possible top around the 71.36. Cotton is noted as being economically sensitive product and right now Asian demand is a significant factor. Yesterday’s price drop is likely tied to news of the corona virus outbreak reported out of China which could be a threat to demand and speculative risk mentality if it is not quickly contained. There is a lot of support for cotton as demand is still strong but there needs to be confirmation of purchases out of China to really drive this market higher.

Agricultural - Grain Futures Update w/Stephen Davis - 01/24/2020×
Feel free to contact Stephen here to leave a question or comment on his video.
Agricultural - China To Begin Importing U.S. Pork×

The April hogs market seemed to reject the downside breakout by hitting a level not seen since December 9th but rallied to close 150 points off the lows. China has a huge demand for U.S. pork and will start to actively import our pork which should cause U.S. supplies to start tightening after reaching record high levels. The pork cut-out values are the highest since middle December which gives an indication that there is still high demand. China’s national average spot pig price is up 7.3% for the month and over 200% year over year. CME’s hog index is at $60.45 which is up from last week’s price of $58.99. The path of least resistance is upward in the pork market and I suspect that the April Hog market will test the 10-day moving average and break through that level to re-test the December highs of 78.75 over the next 30-day time period. The USDA estimated hog slaughter came in at 498,000 head yesterday. This brings the total for the week so far to 909,000 head, down from 995,000 last week, but up from 867,000 a year ago. The USDA pork cutout, released after the close yesterday, came in at $77.37, up $1.21 from $76.16 on Monday and up from $73.43 the previous week and $69.45 a year ago. This is the highest the cutout has been since December 17.

April live cattle continues to trade in a consolidated market for the past 2 ½ months, trading in a price range from $125 to $128 with the market hitting a low of $124 back on November 22nd. These prices still remain at a $3-$4 premium to the cash market and with a steady rise of open interest in the market, that gives an indication that this market could break out of this range to the upside. If we were to see higher cash market prices, we would need to see stronger beef price action before anything else. There were no cash trades reported for Tuesday, but on Monday we had 126 head reported at $124, the lower end of last week’s range.

Fundamentally, there is little positive weather premium in the futures market as another winter system moves through the Midwest. The USDA estimated cattle slaughter came in at 123,000 head yesterday. This brings the total for the week so far to 245,000 head, up from 244,000 last week and up from 233,000 a year ago. The USDA boxed beef cutout was up 79 cents at mid-session yesterday but closed 13 cents lower at $214.51. This was up from $212.76 the previous week but down from $215.26 a year ago. The COT report showed managed money traders were net buyers of 2,917 cattle contracts for the week ending January 14, increasing their net long position to 83,603. The estimated slaughter came in at 631,000 head last week, down from 640,000 the previous week but up from an actual slaughter of 626,000 a year ago. The estimated average dressed steer weight was 829 pounds last week, up from 827 the previous week and 818 a year ago. Estimated beef production came in at 521.8 million pounds last week, down from 528.1 million the previous week and up from 511.1 million a year ago.

Currency - Save the Date: BREXIT DAY January 31×

With the ever present Brexit talk casting doubt over the future of the UK for the past 3yrs, it looks as if we’re finally set to find some closure, maybe.  The UK passed it Brexit bill earlier this month through the House of Commons and the House of Lords, and set Jan 31 as the official day when the UK parts ways with the EU for good.  Following the official Brexit date, the UK and the EU may then begin negotiations on trade and other various economic and logistical issues involved in the split.  As we wade through a year’s worth of negotiations between the two sides, it has our attention turned to the British Pound. 

The Big Picture

My analysis suggests that the British Pound could outperform this year with more clarity surrounding the future of the UK.  Boris Johnson has largely been regarded as a “Pro Business” PM, and will attempt to harbor foreign investment back into the UK, which has largely been scarce since the onset of Brexit and the uncertainty surrounding the future of the UK’s economy.  More outside investment, creates more demand for that host countries currency, in this case the British Sterling. 

The Near-term View

With a broad based economic slowdown across the European region for the past 1-2yrs, including the UK, we’re beginning to find a light at the end of the tunnel, we think.  Specifically in the UK, with further clarity regarding Brexit, a recent health Employment report (208K jobs added in the UK last quarter), and an acceleration of the UK PMI data released this morning (not strong by any stretch, BUT an acceleration indeed) – We’ll now turn our attention to the Band of England and there decision on monetary policy on Jan 30th .  Prior to the PMI data released, consensus put a 60% chance of a rate cut by the BOE at this month’s meeting.  I’m less convinced, and expect the BOE to take a “wait and see” approach.  It’s very close.  Going forward, we do expect a modest acceleration in the UK economy and certainly having the uncertainties surround Brexit nearing the rear-view mirror, we think the British Pound will outperform going forward. 


Near-term Bullish trade (1-3 weeks) and trend (3-6 month time frame) – Favorable Entry Level 1.3060.  A break of 1.2780 will tip the 3-6 month trend and we’ll have to re-check our premise at that point. 

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.
Equity - No Panic in the Stock Market×

Stock Futures in the U.S. were higher this morning on positive economic data and earnings that, for the time being, outweighed the fears coming from the coronavirus in China. China has made efforts to contain the spreading virus before one of the busiest traveling days, the Lunar New Year. While strong quarterly results from American Express and Intel along with good European economic data has kept the market positive.

The death toll from the virus was 25, with more than 750 confirmed worldwide cases. This prompted the Chinese government to force the halt of domestic and international tours from the country’s travel agencies. The WHO, World Health Organization, has stopped just short of declaring this a global health emergency.

Germany’s PMI, Purchasing Managers’ Index, that was released today showed the country’s private sector had gained momentum in January and the pullback in manufacturing has eased. The same index out of the UK also rebounded sharply this month with a nine month high.

U.S. Stocks remained close to al-time highs as reports from tech stocks led this morning’s earnings report. Shares of American Express rallied higher, over 5%, as fourth quarter profits beat expectations. While Intel jumped 7% after the stronger than anticipated data-center sales were released.

Resistance is checking in today at 333900 and 334500 while support is showing 331200 and 329400.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-861-1656 or jyasak@rjofutures.com.

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