RJO FuturesCast

Gold is in another holding pattern, trading sideways and marking time until the next breakout to the upside. Gold has been holding above $1,810 and has also been capped by resistance at $1,850. Gold will break out above $1,850 when the US Dollar drops below .9000. It’s coming! In the meantime, there is a defined and tradeable range. Try to stay long a deferred contract month while scalping the front month would be one way to approach this market.

ETF inflows have been positive. The dollar has been trending lower. Inflation, real inflation that you and I see everyday is here. The government’s measured form of inflation is also becoming undeniable. That’s why they, the Fed speakers, are calling it transitory inflation. They want you to believe there is a “goldy locks” scenario. Not too hot, not too cold. That they will spark inflation, fan the flames and pour gasoline on the flames but be able to keep the fire under control. I don’t buy it. We’re going to continue to throw money at the economy when we already have an all time high of cash sitting and waiting for the economy to fully open. Stay long gold. The low is in!

Oil prices are recovering after a more than 2% drop on Thursday following a nearly eight-week high as India’s coronavirus concerns continue to deepen as well as the restart of the Colonial pipeline weighed on sentiment. This comes amid reports that OPEC+ production increased in April as well as reports that US exports were the lowest since 2018 (along with a slight downtick in inventories), according to the EIA. Notwithstanding, both OPEC+ and the IEA raised their global demand forecast for the back half of the year as demand is expected to outweigh supply. Interesting to note, despite the ramp in US equity volatility this week, oil vol (OVX) remained relatively subdued as the market remains bullish trend with today’s range seen between 63.37 – 66.59.

December cotton closed lower Tuesday, but stayed above Mondays low. Outside forces were mixed with June USD modestly lower which should be supportive to cotton. West Texas could get up to .5 inches of rain in the next 5 days, which it desperately needs. The 6-10 day and 8-14 day forecasts have rain in most of Texas besides the far west part of Texas. For the USDA report today, the average trade estimate for US 2021/2022 cotton production is 17.23 million bales vs. 14.70 million for last year. With expectations for declining ending stocks for the new coming crop season, the technical actions remains weak with the market closing lower for 3 days in a row heading into a key USDA update. Resistance comes in at 8850 and 8945 with support at 8700 and 8645.

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.

Looking at the June 10-year we have saw an overnight high of 132-18 and a new low this morning of 131-29, we are currently sitting at 131-30. Some noteworthy events have happened, including last Friday's non-farm payroll which came in way under estimates and ignited a sizable rally in the treasury market.  But, the treasury yield has since rallied significantly this week on fears of inflation. All one needs to do is look at what the grains have been doing over the last few months.   Nothing but straight up. Continued buying from China is certainly reviving the one word that makes treasuries most vulnerable and that is inflation. Go to the local grocery store and see the elevated prices of food that contain grains in them. Prices have gone up considerably in the last few months. In addition to the treasury market, the stock market has been battered this week as well, especially the Nasdaq. If yields continue to rise, it could be a tough go ahead for stocks in general but banking stocks should perform well in this type of environment.

After printing new lows for the move in all four indices yesterday, they all managed to close in positive territory.  That momentum has carried into today as all four are currently up anywhere from 0.9% to 1.8%.  Inflationary concerns are largely being blamed for the selloff, but you also had Janet Yellen comment that stock valuations “Generally are quite high” earlier in the month.  She went on to suggest interest rates may need to rise to prevent the economy from “overheating.”  Upon receiving some flack for the comments, she walked them back later in the week.  We also saw the Fed warn of the possibility of significant corrections as asset prices continue to climb.  While the Fed suggests these inflationary pressures are transitory, Wednesday’s CPI reading of 4.2 percent certainly raised some eyebrows. 

Today’s retail sales figure came out unchanged from last month. We had expected to see an increase of one percent.  Consumer sentiment missed by a pretty wide margin, coming in at 82.8 vs. an expected reading of 90.3.  Next week’s news slate is relatively light.  We’ll see a few housing numbers and the weekly jobless claims number, but traders will be looking ahead to the Q1 GDP reading on the 27^th. 

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.

Markets crashed through the floor boards yesterday on the CPI “surprise”.  It shouldn’t have been a surprise to ANYONE, especially not in this corner.  CPI +0.8% vs +0.2% m/m and 4.2% vs 2.6% (MAR) y/y.  Deep Scenario 2, Growth and Inflation accelerating. The market move yesterday is likely going to change the technical landscape of the market over the next 1-4 months –Scenario 4 remains the call IN Q3 2021.  Technical analysts all over the Twittersphere are calling market tops and blah blah blah, and the bears are getting excited. It might be right, it might be wrong….what I do know is if we are going to Scenario 4 in Q3, there’s going to be plenty of trading opportunities along the way. Tops are a process and quantitatively speaking, all the indexes are immediate OS, BULLISH trend, and of course at the low end of the range.  That’s how I’m viewing markets this morning, no panic, just process oriented.  And yes, check out the IVOLs – it would appear to me, much of Wall Street was prepped for a day like yesterday via the implied vol option premiums being deeply positive.

UPDATE: PPI accelerated 6.2% vs  4.2% (Mar) y/y

Initial Claims fell to 473K vs 507K previous

Stock Index Profile:

IVOLs vs 30 Real. Vol. aka the cost to hedge

SPX 72% vs 45% w/w

NQ 49% vs 40% w/w

RTY 53% vs 17% w/w

Heavy premiums indicator interest to hedge via Puts, counter consensus signal favoring the longs.

CFTC Position:

SPX (19K)

NQ (16.5K)

RTY (23K) nearing the heaviest short position on a 1 yr look back

Markets have a funny way of pleasing the least amount of investors, aka the non-consensus view….

A few market comments a la carte:

Nat Gas- still has a positive tilt on the chart, and we remain bullish of energy. Increased US LNG exports remain a central bullish theme, but is it enough to propel us higher. Technical view favors more upside at the moment. We’re hold a long Nat Gas bias on the books with immediate upside to the top of the range 3.08. 

Platinum- it’s been a market we’ve been bullish on for a while, not so much at the moment. The weekly view looks toppy and a breakdown could be imminent. The longer-term fundamentals (which I haven’t reviewed lately, but will update my notes this weekend) remain bullish. Platinum looks like a sell side trade from here going forward. 

VIX- Massive reflex higher in the vol instruments. Immediate OB here, coupled with immediate OS in stocks. We may be attempting to break into a higher regime of vol, actually we absolutely think we are. But markets are likely to wade back and forth between either side of the range until a definitive trend appears.  VIX Neutral trend in the model, with more downside than upside potential near-term. 

10yr Yields: approaching the top of our range, you should be covering up short bond trades, for now. 

Good luck,

Some of you have noticed my speaking in terms of momentum lately. Last year around this time, I started to track this momentum indicator and having it paired with my market trend and range signal, I find it to be another credible/accurate tool when making a directional call.  So I’ve decided to place it in the range table below for at least a little while. 

DISCLAIMER:

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.