RJO FuturesCast

After starting the week strong and reaching a 10-week high on the stock market sell-off, gold futures have fallen of a cliff to end the week. As it stands, we are 3% off Tuesday’s high and tracking to close below $1,800. This is likely due to the hawkish news out of the Fed we saw on Wednesday. The U.S. saw its strongest economic growth since 1984 and that coupled with the news of rate hikes propped the U.S. dollar up the highest level it’s been since July 2020. The Fed rate hikes are supposed to start in March and we’ll have a better understanding just how much they will impact gold then. In the meantime, keep an eye on gold and the USD in the next few weeks. The action we saw during the backend of this week could be an overreaction to the news we got from the Fed on Wednesday, or it could be a sign of a larger trend to come.

The silver market is selling into a congested price structure. So long as the market stays above $21.50, it will probably not lead to an accelerated sell-off. I'm hearing from folks familiar with the physical silver market that there is a slight increase in physical silver demand at these levels $22.00 area. As I have stated already, options might be a better approach for those looking to test the market. A close over $23.50 will set a stage for another uptrend from a technical perspective. Another indication that silver will hold the current level is inflation and other commodity prices. Higher commodity prices and inflation uptick will garner enough support to keep silver stable in these areas for a tad longer. Please reach out to me if you would like to discuss this in-depth.

Oil prices have continued to ramp higher and are poised for their sixth consecutive weekly gain as concerns over tight supplies continue amid higher fuel demand. Prices have gained nearly 15% YTD amid geopolitical tensions between Russia and Ukraine as well as threats to the UAE from Yemen’s Houthi movement.  This comes as OPEC+ is observed to continue with their existing plan to gradually increase production with the market looking ahead to the upcoming meeting on Feb 2^nd. Regarding demand, China, the world’s largest importer, is expected to rebound by around 7% this year, reversing last year’s decline. Crude stocks rose 2.377 million barrels recording the second consecutive build after falling for eight weeks in a row, according to the EIA. The year over year deficit fell -12.107 million barrels to -60.463 million barrels with the five-year average falling to -37.284 million barrels. Oil volatility (ovx) continues to remain elevated and above trend with the market remaining bullish trend with today’s range seen between 80.73 – 87.76.

Cocoa futures have fallen from the highs we saw mid-month. Currencies have played a major roll in the weakness in cocoa futures. The Euro specifically has continued to move lower which has carried over to the soft, causing concerns that the European demand will continue to be low for cocoa.

On the macro-side, it appears the demand for cocoa is starting to increase. There are also supply concerns that should provide support and could start a quick recovery in futures prices. Weather in West Africa is also very dry and hot which will potentially hurt this year’s crop – causing traders to think that we move back to 2600.

For now, traders should continue to monitor weather patterns in West Africa. This paired with volatility in the global markets, mixed with demand concerns should create an interesting quarter of trading.

While the hourly chart of Globex day-session prices below does not yet reflect overnight's gains that show the market currently trading around 8.12, this performance reinforces a resumed longer-term bullish count introduced in 19-Jan's Technical Webcast following that day's bullish divergence in short-term momentum that provided early evidence that the entire Nov-Jan sell-off attempt from 8.75 to 7.36 was a 3-wave and thus corrective structure.  This week's continuation of early-Jan's basing behavior leaves smaller- and larger-degree corrective lows in its wake at 7.75 and 7.36 that this market is now required to relapse below to defer and then negate this resumed bullish count.  Per such and importantly, these levels serve as our new short- and longer-term risk parameters from which a resumed and more aggressive bullish policy and exposure can be objectively based and managed.

On a daily log scale basis above, the extent and impulsiveness of this month's recovery from 7.36 easily shows the Nov-Jan decline as a 3-wave affair as labeled.  Left unaltered by a relapse below 7.36, this 3-wave event is considered a corrective/consolidative affair that now warns of a resumption of the secular bull trend shown in the monthly log chart below that preceded it.  Moreover, sustained, trendy, impulsive behavior higher should not come as a surprise in the period immediately ahead.

If there's an interim wet blanket on this bullish count, it's the market's position in the middle of the past couple months' range where we don't want to underestimate the odds of aimless whipsaw risk typical of such range-center environs.  But herein lies the importance of identifying a tighter but objective risk parameter like yesterday's 7.75 smaller-degree corrective low.  In effect, the bullish bet on a move to new highs above 8.75 can assume risk only to 7.75.  A relapse below 7.75 won't necessarily negate the long-term bullish count, but it would defer or threaten it enough to warrant defensive measures.  Until and unless this market fails below at least 7.75, there's no way to know the trendy, impulsive 5th-Wave to new highs above 8.75 isn't launching straight away.

These issues considered, traders are advised to move to a new bullish policy and exposure at-the-market (8.13 OB) with a failure below 7.75 required to defer or threaten this call enough to warrant its cover. In lieu of such weakness, further and possibly accelerated gains straight away are anticipated.

Stock futures are trading sharply lower this morning continuing yesterday’s trend. Key economic news this morning was the factor. Personal income rose 0.3% against the expected 0.5% rise. The personal consumption expenditure, the Federal Reserve’s primary inflation measure, rose 0.4% vs. November and 5.8% year over year. Thursday’s losses in the major stock indexes held above Monday’s low which gave hope for week ending rally before the Fed numbers. Earlier this week Jerome Powell, Federal Reserve Chairman, strongly signaled a March increase on interest rates from their near-zero levels. The uncertainty of how quickly they will raise rates and how rapidly they will begin drawing down it’s $9 trillion balance sheet and tightening financial conditions left investors skittish. “Everything the Fed is doing at this point we think has just been priced in over the last few weeks. And that's where a lot of the slide in the market has come from," Morgan Stanley Managing Director Kathy Entwistle told Yahoo Finance Live on Thursday. "And the big question is, will we slide a little bit more? What's happening? We're looking at companies and their earnings ... to determine whether or not we're going to have a little bit more of a pullback in the market or not," she added. "And that's based on what they can do going forward, where their opportunities are. And we've been hearing a lot about inflation. If you think about a 7% inflation rate, that's quite significant." 

Support today is checking in at 424200 and 417500 with resistance showing 440300 and 44920.