RJO FuturesCast

May 7, 2021 | Volume 15, Issue 18

The Markets

Metals - Gold is Breaking Out to the Upside

Gold futures had a definitive break out to the upside yesterday. Early in the session this morning seems to be confirming that the breakout is real. A close over $1,820 is necessary today. A close over $1,840 would be very strong.

I don’t think that you can look at commodity prices and NOT see inflation. Energy markets, agricultural markets, copper and lumber are all inflationary and this is not just transitory. This is not like last year’s toilet paper shortage! It’s the real deal inflation beginning to heat up. Gold is continuing to climb away from the $1,675 lows. Another period of consolidation would be in order after this type of break out. The 10 and 20-day moving averages are pointing higher and beginning to fan out. The 50-day moving average looks like it’s about to curve upward now too. The next big level to watch is the 200-day moving average which is at $1,868. Some sideways between $1,825 to $1,850 is more likely over the next week or two.

Gold Jun '21 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or fcholly@rjofutures.com.
Metals - Silver Climbing a Stairway to Heaven?

The Silver market is heading higher simply because it is hard to ignore the inflation pressure looming in the background. A quick glance at aggregate CRB commodity index shows that inflation is just around the corner. The list of commodities that are heading higher and making all-time highs are numerous. Have you seen lumber price lately? How about corn, beans and wheat? They are making multi-year highs. You can look at my previous notes to see that I have been keeping potential inflation concern into consideration in projecting silver direction. Current Silver price is $27.47 and most likely heading  over $30.00 and staying there. The Fed has mentioned their concerns about inflation, and overall, I think that commodities will remain in bull camp in 2021. So, any strong break in silver price will probably be considered as a buying opportunity rather than a selling opportunity.

Silver May '21 Daily Chart



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.
Energy - Oil Poised for Weekly Gain

Oil is poised for a weekly gain despite the recent surge in Covid cases in India as optimism surrounding the global economic recovery continues to accelerate as well as subsequent impact on fuel demand. This comes amid reports that Chinese April crude oil imports fell 18.7% month over month as well as reports that key Chinese port levels have reached six-week highs. Notwithstanding, Chinese data showed export growth unexpectedly accelerated in April and the private survey demonstrated an expansion in the activity of the service sector.  US inventories fell more than expected by 8 million barrels with exports rising 4.1 million barrels, the most since last March of last year according to the EIA. The market remains bullish trend with today’s range seen between 62.74 – 66.83.

Oil Jun '21 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or aturro@rjofutures.com.
Softs - Slower Recovery Than Expected in Cocoa

Cocoa futures hit a 6-month low this week as weakness in demand continues. Outside markets and possible supply issues stopped that dip from becoming any worse. The Euro also made a nice recovery helping support cocoa prices in the short-term. Cocoa’s chart is still looking to find real direction, but this may take months to occur. Look for volatility through the spring and summer months as areas of the world continue to ease their Covid restrictions.

If the vaccine process continues at the pace it’s been at, many chocolate companies are hoping for positive purchasing data heading into Q3 when these companies can usually capitalize on the holiday season approaching October through year end. Halloween chocolate sales are a good indictor of where the US is at with consumption outside the pandemic. In the meantime, continue to look for the macro data to guide traders, followed by the currencies correlated to cocoa – until demand can really recover, prices are set to trade in the 2400-2500 range.

Cocoa Jul '21 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or pmooses@rjofutures.com.
Agricultural - Grain Futures Update w/Stephen Davis - 05/07/2021
Stephen Davis recaps the past week in the grain markets as we continue to see prices soar. Could we be headed to all-time highs?
Agricultural - Potential Reversal Coming in Cattle?

Jun cattle had a strong day yesterday with a sharp recovery and substantial volume, which may be giving us the indication the bottom is in and a reversal may be coming in June cattle. Expensive feed costs are also making traders leery that there may be a short-term bulge in the market which could eventually have this market make another move lower. The USDA boxed beef cutout closed $1.59 higher at $306.37. This was up from $293.76 the previous week and was the highest the cutout had been since June 2, 2020. The 5-day, 5-area weighted average price on Thursday was 118.29, down from 119.01 last week. This was dominated by a large trade of 12,000 head in Nebraska at 117-118 on Tuesday. Kansas and Texas/Oklahoma traded in a range of 118-119 on Wednesday and Thursday, with a total volume of 7,915 for the two regions.

The USDA estimated cattle slaughter came in at 115,000 head yesterday. This brings the total for the week so far to 470,000 head, down from 477,000 last week but up from 340,000 a year ago. US beef export sales for the week ending April 29 came in at 16,928 tonnes for 2021 delivery and 161 for 2022 for a total of 17,089. This was down from 23,572 the previous week and was the lowest since April 8. 

I anticipate the cattle market making a move higher in the short-term on the June contract. Seasonally we are coming into high demand and coupled with strong export number I would put a target at about $118-$120 level before we start seeing some resistance getting hit.

Live Cattle Jun '21 Daily Chart
Equity - Jobs Report Cuts into Stock Gains

U.S. Stock Futures hung on to their early gains while government issued-bond yields declined after a poor jobs report number that suggested a slowdown in the recovery of the economy. This month’s job report showed that employers added 266,000 jobs with unemployment rising to 6.1%. This was far from the economist’s prediction that jobs would grow by over 1 million and the unemployment rate falling to 5.8%.  The 10-year Treasury note was down to 1.509 from 1.561% which was a decline for the sixth consecutive day. The disappointing data added to the concerns of bankers and economists who feel that there is still great downside risk in the U.S. economy recovery. The U.S. is still 8.2 million payrolls short of the pre-Covid pandemic levels and the unemployment rate and labor force participation are still off from the February 2020 levels.

“ Federal Reserve Chair Jerome Powell has suggested he would want to see a "string" of strong payroll gains totaling more than 1 million before the central bank considers adjusting its ultra-accommodative monetary policy posturing. With the April jobs report such a stark disappointment, it appeared the economy still did remain far from the central bank's targets of reaching maximum employment, and would keep the Federal Reserve on hold with its current policies.”

Resistance today is showing 422000 and 423500 with support checking in at 416500 and 412000.

E-mini S&P 500 Jun '21 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 - Friday Futures Recap w/Peter Mooses - 05/07/2021
Peter Mooses recaps the week that was in futures. We had the jobs number today and it appears to be eating into some late week gains in the market.
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or pmooses@rjofutures.com.
Economy - Futures Market Insight w/John Caruso - 05/07/2021

I rarely look at the Dow Jones, because quite frankly 30 stocks are NOT the market, but for crying out loud, look at the Dow.  It hardly so much as flinched during this last episodic moment of volatility in the NASDAQ and SP500.   Just an observation.  Sure, the tectonic plates may be shifting a bit underneath the market, but honestly, I’m not so sure just yet.  The SPY is a hair away from a new ATH as I’m drafting this note at about 9pm May 6th, we’ll see if this ages well by the morning.  

Volatility- it appears as if Vol is attempting to breakout into a higher “regime”.  We know, or think at least we think we know what may be coming in Q3 (July-Sept), and that’s Scenario 4 GROWTH/INFLATION SLOWING.  You’ll be the first to know when we go full-on bearish, I’ve never missed an opportunity to position short inside of a Scenario 4 set-up. 

Bonds/Yields- Clearly there’s been some intervention in this market, as inflation via rising commodity prices continue to make near decade highs, and bond yields sag.  It begs the question if the Fed is boxed in, being that they can’t allow rising yields nevertheless raise rates themselves, because they need to service the debt they’ve created via interest payments to the bond holders, but also want their cake too in the ability to stave off hyper-inflation.  I don’t know what the Fed (and Treasury) are attempting here, from Powell’s “we’re not even thinking about thinking about raising rates”, to Janet Yellen’s gaff on “we may need to raise rates to cool an overheating economy”.  What’s going on here?  I don’t know, but it’s starting to look like a fiasco.  They’ve created an environment where cash is trash, and you’re forced into riskier assets via stocks/commodities/Crypto to fend off inflation eating into savings. And then yesterday there was this: https://www.cnbc.com/2021/05/06/fed-warns-of-possible-significant-declines-in-stocks-as-valuations-climb.html .  Yields from my vantage point appear to be attempting to break down into a LOWER trading range (Bond prices into a higher range) –and of course we’ll see how this ages following this NFP Employment data this morning.  And I’m personally still short bonds/proxies myself – and this may end up being wrong, but I’ve been right on this market for a long time too.  Regardless, we think this would be a temporary development and that we’re on the brink of a multi-year bear market in the Bond market (bull market in rates), and this is likely to reignite into year end. 

Gold/Silver- Gold remains bearish trend, while Silver bullish.  It’s tough to chew on that, but from our quantitative signal, that’s the truth for now.  Gold should hit some stiff overhead resistance between here and 1850.  I said a week ago that Gold looked “Ok” so long as it held 1760-50 level, it could run to 1810-1820, and it was correct.  But, now we’ve reached those bear market rally targets we’ll get back on the sell side.  I was bullish of Gold from the end of 2018 until Nov. of 2020, I’ll be bullish again, just not now.  And, if we’re correct on Bonds entering a multi-year bear market, well we know Gold is not an asset you want to own in that environment.  Still think another smack down is coming in the Gold market.  If I end up being wrong on Gold, I’ll own up to it, and may actually call William Devane and Rosland Capital in between commercials on Fox. 

Gold Daily Chart (excuse my artwork) – simple fact is, I’m staring at an 8/9 month bear market….this is not a chart I want to own on the long side, yet. 

IVOL remains at a Premium in the major indexes – meaning the bulls are nowhere near complacent, they’re hedged. 

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.

Coming Up Next Week...

View Futures Calendar