RJO FuturesCast

April 17, 2020 | Volume 14, Issue 16

The Markets

Metals - Gold Bulls Need A Stand Here

June gold futures have seen unbelievable volatility over the past few weeks. We are now seeing an average move of $49 for the average true range on any given day. We made a high of $1789 and are now just days later at $1710 at the time of this article. Investors should be cautious in this market and potentially look at the options contracts and smaller futures contracts such as the 10,33, and 50 oz contracts if new to trading futures. I can provide strategies depending on the client’s risk tolerance and bias in gold for anyone interested.

Technically speaking, gold has not seen a close below $1700 since April 8th. We need to maintain closes above $1700 at a minimum in order to justify a push above $1800 in my opinion. The volume has been very low and less than half of the average trading volume since the end of March. This should be taken into consideration as big moves up or down can be taken with a grain of salt. It’s important to look at key price levels, and right now we need a new high sooner than later with some closes above $1750 now needed. We could also be setting up for another push above the recent high of $1788 with a bull flag pattern appearing to form with the 4-day selloff. Is now the time to buy? If you are bullish gold and don’t believe the stock market bounce, yes, this is a level that should be considered for long exposure. The fed is printing money on an endless basis, and the stock market could easily be derailed by additional negative economic data which has been horrendous so far. There are clear reasons to own the precious metal, and it won’t take much to push us back to the highs in my opinion.

Gold Jun '20 Daily Chart
Energy - Bearish Bias Remains in Crude Oil

Only a few times in OPEC+ history has production cuts happened so quickly, and while significant we believe traders are coming to the realization that this will not suffice in stabilizing oil prices. API Crude inventory numbers the other day added to downward pressure in crude futures. It should be noted that Germany announced they will be opening up their economy next week, and of course China has been slowly opening, but this will not be reflected in any data for some time. The fact of the matter is the historical demand destruction that has taken place is causing a complete fundamental collapse in the crude market.

May crude contract has technical support $20.00 flat and if this breaks in near sessions we should see a test of $19.50, where buyers have stepped in before. The first upside resistance will be $20.30 and a break of that should see a $20.50 test of resistance if traders

Don’t fade any sort of rally.

Crude Oil May '20 Daily Chart
Softs - Coffee Offers a Bullish Indicator

July ’20 coffee futures start the day with a positive reversal on threat of tightening near term supplies and concerns of harvest issues. Reports continuously indicate shrinking coffee stocks and the threat of coronavirus impacting labor during harvest. This creates an interesting situation for the coffee market. There could be strong volatility with headlines shifting between near term bullish and long term bearish fundamentals. However, with bullish near term tight supplies and potential for abundance down the road, there could be a major discrepancy created between front month and differed futures contracts which could be an exciting opportunity for spread traders.

Coffee Jul '20 Daily Chart

Agricultural - Bullish Canola Count Intact Above Minimum 851.5

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.

Agricultural - Grain Futures Update w/Stephen Davis - 04/17/2020
Stephen Davis discusses this week's movements in the grain markets. The weather in the midwest has been unpredictable lately and that could have an impact on future grain prices.
Agricultural - Possible Turnaround in Cattle?

We could start seeing a turnaround in the cattle markets in the short term due to some positive fundamental news with the talks of reopening the economy. Albeit “phased and deliberate”, it’s an opening nonetheless. With the strong week in the cattle market and favorable export numbers showing more active buying from Hong Kong and China, packers now have an incentive to keep feedlots current with marketing’s. There is still a large discount of the futures to the cash market right now with light volume traded this week, with a total of 792 head trading in Iowa/Minnesota at 95-100 over the past three sessions, down from 105 last week and 261 head trading in Nebraska on Wednesday at 94, down from 105 last week.

                Yesterday, June cattle hit limit up but closed midrange. This buying interest seems to be because of the big discount of futures to cash but also people could be buying into the thought of restaurants opening up in the coming weeks. One key factor for the producers to keep an eye on is the cash level basis, and although they are still near record highs, the move to a more normal basis could be cause for concern over the next couple weeks that may give the market underlying swings.  

The USDA estimated cattle slaughter came in at 92,000 head yesterday. This brings the total for the week so far to 376,000 head, down from 417,000 last week and down from 488,000 a year ago. Average dressed steer weights for the week ending April 4 came in at 889 pounds, down from 891 the previous week but up from 865 a year ago. The 5-year average weekly weight for that week is 868.4.

Live Cattle Jun '20 Daily Chart
Currency - Yen Showing Signs of Long-Term Rebound

After the yen’s massive decline in value coming off of annual highs on March 9th, people are asking, “Will it regain its strength?”. With the United States Federal Reserve continuing to increase the money supply at an alarming rate, it seems like common sense that the yen will continue to strengthen against the dollar. What’s important to note in addition to this, however, is the relationship between Japan’s money supply versus other major economies. There is nearly no doubt at this point that Japan’s economy will shrink overall for the year 2020, much like the rest of the world’s, but the real question seems to be not only how it will shrink compared to other countries, but how it will shrink in relation to that company’s respective economic history. Economists of 24 private institutions project an average quarterly GDP shrink of 2.93% in Japan, coming to an annualized 11.72% contraction in GDP overall.

On the surface this certainly sounds dismal, but not when you look at this in context to other major economies. The Office for Budget Responsibility notes that GDP could plunge by 13% in the UK for the year 2020 and Goldman Sachs reports that the United States, the world’s largest economy, has the expectation that GDP will experience a 10% decline solely due to COVID-19. As the world now has its mind set on rampant quantitative easing measures, it is no longer shocking that the United States Federal Reserve has been so aggressive about economic stimulus. Currently, the world’s idea for remedying this solution seems to be pumping more currency into their respective countries’ economies, hoping they can pay their way out of a recession.

However, Japan has experienced occasions somewhat like this before, when in 2009 GDP shrank by 5.4%. For the US, however, GDP shrinkage of this magnitude, at least in the last 50 years, is generally uncharted territory. In 2009 US GDP shrank by 2.5%. The relationship between 2009 and 2020 projections are four times the effect on American GDP vs roughly only twice as much for Japan (5.4% vs 11.72% & 2.5% vs 10%). For this reason, I feel an overreaction is more likely to occur in US monetary policy.

There are still many unknowns in this unprecedented scenario regarding this pandemic, but one thing seems sure, our new mindset seems that the more a country is projected to shrink, the more aggressive the quantitative easing will be, and that aggressive QE will increase the money supply, which will in turn devalue their respective currencies. For these reasons, I project the yen will increase in value versus the dollar over the next several months.

Yen Weekly Chart
Equity - Gilead Rallies Stock Market

The stock market jumped after a major drug maker presented a promising treatment for patients diagnosed with COVID-19 while policymakers escalated talks of reopening businesses. According to Stat News, a health-care media site, there have been promising results from a drug used to treat COVID-19. This disease has taken the lives of almost 150,000 people world-wide and closed most of the global economy to contain it. Researchers at the University of Chicago Medical Center have reported that they have seen “rapid recoveries” in patients taking Gilead Sciences experimental drug remdesivir in clinical trials.

Even though health officials and lawmakers have been saying that this country’s testing capacities fall dangerously short, President Trump released guidelines for a return to normalcy where coronavirus cases are low. Kristina Hooper, a global strategist at Invesco had said, “There is also positive sentiment being generated by the White House’s plan to begin slowly rolling back lockdown measures.  It seems clear that, as of late, stocks have chosen to look through what is expected to be a dramatic drop in earnings, and forward to a resurgence in economic activity in the not-too-distant future.”

Support today is 278000 and 2730 with resistance showing 284000 and again at 285000.

E-mini S&P 500 Jun '20 Daily Chart
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.
Economy - S-T Mo Failure Insufficient to End RBOB Correction, But Beware

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.

Coming Up Next Week...

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