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.

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. 

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.