RJO FuturesCast

May 15, 2020 | Volume 14, Issue 20

The Markets

Metals - Gold Tries to Shine, Again

June gold futures have once again, shown that discounting a potential run to the highs in gold is a bad idea. I have not been overly bullish or bearish the metal over the past few weeks, mainly because it doesn’t seem to be trading based on the usual “stocks down gold up” type of move and rather sideways in nature. I’ve seen days where gold has soared along with stocks and just the opposite; the most notable being the market crash in March that took gold down with it. My view of the gold market has no bearing to where it will go, however, the price action along with silver futures today has be believing that if it does continue higher gold should catch some of the wind pushing silver.

Fundamentally, I could make a case either way from the fed printing too much money being bullish but bearish with industrial demand in India and China weakening putting pressure on the gold long term. A good trader knows when to stop listening to the constant noise in the market and start looking at technical trading, more so than what you usually would. Gold held a 50% retracement level from April 1 until now, which came in at 1680 on the June contract. June gold does look much better than it did just a week ago, and it will look even better on a close above the contract high. When this happens, traders shouldn’t immediately press the bet, but rather wait for the first dip once it’s made that move above 1790. Options in conjunction with futures are a great way to trade with limited risk and excellent reward potential.

Gold Jun '20 Daily Chart
Metals - Silver Outperforming Gold

This morning, the picture is worth more than 1000 words. Front month delivery silver is up 67-cents on the day to $16.84.  I have attached a chart of Gold/Silver ratio. I really like looking at relationships in approaching markets.

As you can see clearly below, the COVID-19 ruled world we live in is welcoming silver with open arms. The country is in the process of reopening, thanks to the phenomenal work of first responders. Seeing the Blue Angles fly over Chicago, you can’t help it be proud of all the efforts and the fights that continue to this day. We wish all the Governors, the best of luck.

Back to silver, the technicals look good to the bulls as breakout of the congestion in the weekly chart. Really you would need silver to dip below $14.80 to excite the bears. Any pull back will most likely be seen as a buying rather than a selling opportunity. If you don’t feel like chasing so to speak, give me a call we can look at options strategies.

Gold/Silver Ratio 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 - RBOB Gasoline and the Coronavirus

I am not at all surprised by the recent strength in the gasoline futures market. In fact, I expected this type of market action as the gasoline oversupply fundamental should quickly balance as the economy begins to re-open and people will commute in their own automobiles and forego the trains and planes. Recreational vehicles sales are off the chart as families want to vacation with “social-distancing” and no hotels. People are just getting in their cars and cruising around or driving out to the country. They’re also likely to jump state lines into states that are fully open.

While we see the demand side fundamental increasing, it’s important to know that nearly 33% of refineries in the U.S. are still offline. We will likely see several large weekly draw downs in gasoline stocks over the next one to two months.

As the economy continues to re-open, and workers return to work, how do you prefer to travel? I like the August RBOB contract which is currently trading .9720 at the time of this writing. I don’t think that $1.50 is out of the question. Every penny is worth $420. Futures strategies are not suitable for everyone, so I also have some limited risk option strategies if you’re interested.

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.
Energy - Crude Concerns Continue

While many risks remain in crude one of the main macroeconomic fears moving forward towards a price recovery will be an early increase in production before demand is fully restored. The next OPEC+ meeting is just a couple weeks away, where members will discuss its production policy going forward. The group will need to add to existing cuts to production and cities will need to continue easing restrictions in order to see continued bullish conditions. Stockpiles for the U.S. were down 745,000 barrels and the EIA is now forecasting U.S. output to decline to 540,000 bpd. Futures traders have moved positions into further out months in order to stay safely away from any sort of volatility that we saw so extremely before.

Looking at July crude we see what could be a positive signal for a short-term move. Support showing on the one hour chart at $26.00. We can see that if this level of support breaks a move to $25.21 level can happen quickly. July crude resistance starts at $26.50, which will need to brake in order to potentially see a test of $27.00 resistance. The next upside target remains at $27.50 on the contract.

Crude Oil Jul '20 Daily Chart

Softs - Cocoa Futures Remain Strong

July ’20 cocoa futures regain much of yesterday’s losses being well supported by continued production concerns. Volatility is to be reasonably expected with this economically sensitive market as sentiment bounces back and forth between bullish and bearish attitudes about the re-opening of the global economy. The ongoing tensions between the US and China is a continued source of pressure. From a technical perspective yesterday’s sharp drop in price was rather bearish. However, the lows were rejected, and the market seems to have switched the 2400 price level from being resistance to a support point. I wouldn’t be surprised if we see some consolidation over the next few sessions as cocoa rebuilds some momentum before the next move. A close below 2400 would suggest a bearish tilt to the market until demand sentiment improves. A close above yesterday’s high would be a strong bullish indicator and could suggest on oncoming bull-run.

Cocoa Jul '20 Daily Chart
Agricultural - Grain Futures Update w/Stephen Davis - 05/15/2020

The USDA report came out this week and the readings were unsurprisingly bearish. Keep an eye on the big report which is the Acreage report due out at the end of June.

Agricultural - Live Cattle: U.S. Beef Production Down

June cattle futures finished limit up yesterday which was its highest close since March 11th of this year. There is some good support coming from the discount of the futures to the cash market even as cash continued to rally this week and last. Traders are expecting the slaughter numbers to continue to increase this week while U.S. beef production expected to decline in the 2nd quarter. The USDA boxed beef cutout was up $7.10 at mid-session yesterday and closed $6.81 higher at $475.39. This was up from $428.99 the previous week and was another new all-time high. The cutout has increased for 24 straight sessions. It has increased $253.05 (+114%) since April 8. In their monthly supply/demand report, the USDA lowered 2020 beef production to 25.830 billion pounds, down 6.1% from the April estimate. Poultry production was revised down 2.8% and pork down 5.5%. Second quarter production was lowered by 1.255 billion from the April report, 3rd quarter by 375 million and 4th quarter by 55 million. The USDA estimated cattle slaughter came in at 89,000 head yesterday. This brings the total for the week so far to 175,000 head, up from 155,000 last week, but down from 241,000 a year ago. Cash live cattle were a bit softer on Tuesday. In Kansas, 2,370 head traded at $110, down from $104-$115 and an average price of $110.60 on Friday. In Nebraska, 940 head traded at $105-$110 and an average price of $109.12, down from $114.01 on Monday but up from $108.82 on Friday. In Texas/Oklahoma, 246 traded at $100, steady with Monday but down from $105 on Friday.

The story of the cattle market is still the supply side news whether it’s about decreased production for the quarter or increased slaughter numbers making packers continue the current pace. The cross over and close above the 60-day moving average is an indication the longer-term trend has turned positive. A positive signal for trend short-term was given on a close over the 9-bar moving average. Market positioning is positive with the close over the 1st swing resistance. The near-term upside objective is at 100.170. The market is becoming somewhat overbought now that the RSI is over 70. The next area of resistance is around 99.170 and 100.170, while 1st support hits today at 95.170 and below there at 92.150.

Live Cattle Jun "20 Daily Chart
Equity - Stocks Fall After Record Drop in Retail Sales

U.S. stock futures fell this morning on increased trading tensions with China and a record drop in retail sales. As the coronavirus continued to keep people at home and businesses shuttered, the U.S. Commerce Department released the record breaking drop in retail sales. With an anticipated 11.2% decline the actual number of 16.4% in April was the largest since 1992 when record-keeping was started. Sales numbers in March showed an 8.3% decline. Clothing was down an incredible 78.8%, a drop of 89% year to year, electronics 61% and gasoline almost 30%.  Amazon was the only bright spot with an 8.4% increase. The U.S.-China trade relationship took a major step back As President Trump said he had no interest speaking to his Chinese counterpart and completely cutting ties with them remains on the table. “They should have never let this happen”, Trump said, “So I make a great trade deal and now I say this doesn’t feel the same to me. The ink was barely dry and the plague came over. And it doesn’t feel the same to me.”

Support today is 282200 and 274500 with resistance showing 291500 and again at 293000.

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.

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