RJO FuturesCast

The gold trade seems to be a little too easy recently, incrementally working its way higher since putting in a low of $1,677.30 on March 31^st. Or is gold finally behaving the way one would expect in an inflationary environment? Who cares? Go with the trend! Use the chart and track the US Dollar. I fully expect the rally in gold to continue even as I would expect that the treasury yields in the ten-year notes to rise. The shock of the sharp rise in rates is over. There has been a necessary pause and much debate about rising rates and the prospects of inflation. Inflation is real and gold likes inflation. Gold should not have too much difficulty breaking out above $1,900, especially as the Dollar looks capable of testing .8900.

So, yea, it looks like an easy trade right now. It’s a friendly trend. Remember the adage, “Don’t confuse a bull market for genius”. More importantly, remember to practice good risk management when trading commodity futures. Use options or stop loss orders. Work with a professional.

I’m bullish metals and commodities in general as we have too many dollars chasing too few goods. Gold is assuming the leadership roll once again. Keep it simple!

Silver struggles to advance higher and hold as the Fed is signaling that they will taper off. The timetable is not very clear, but enough news to keep the bulls on edge. In the wake of a weaker dollar, silver is struggling to maintain any gain.  The technicals still hold positive, but further chart damage could hurt the bull's chance of having gains. Other commodities are cooling off a bit this week in the form of correction. Overall, the trend is your friend; unless silver trades below $25.00, there is a good chance that weakness will be bought rather than sold.  

If you want to trade these markets either using futures or options, please let me know.

Oil prices are rebounding off a three-session low as reports that Iranian oil is set to come back online by as much as 500k barrels per day (pending sanction relief) as well ongoing demand concerns from Asia (India). This comes amidst reports that Indian oil imports rose by the most since Nov 2019 as global oil supply/demand is expected to settle out for the rest of the year. OPEC+ compliance came in at 113% for April just as production restraints are set to be lifted at the beginning of June. A supportive development comes from the EIA this week as implied gasoline demand readings came in at the highest since the onset of the pandemic. Oil continues to signal bullish trend on the back of falling volatility (OVX) with today’s range seen between 61.73 – 67.72.

July cocoa continues to move lower the past few sessions. Traders have experienced a choppy few weeks of trading after a small “V” in the chart. Demand is slightly on the rise as more easing occurs in the U.K. and the U.S. As more vaccinations are administered, there appears to be an increase in demand for many commodities. Cocoa in particular, should see a rise in prices, especially later in the year as we head into Q3. Inflation is also a huge question for the U.S., this will have an impact on commodities and how they react to their natural day-to-day fundamentals.

For now, continue to monitor the Pound and Euro and see the correlation work its way into the cocoa market. Weather premium is also something to watch in the near term, mainly the lower than normal dry spell in West Africa. There is already a robust supply from last year and with a weak demand tone, prices may move a little lower before we see the real recovery take place.

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.

June cattle continued to trade lower yesterday with expectations for beef demand to drop considerably after the holiday. This year may be a little different in the fact that Argentina is banning exports next month and consumer spending is expected to increase over the next couple months due to an increase in consumer disposable income. These factors should keep the market supported for the next couple weeks. I suspect June cattle finds support at the 115 level before moving higher. Cash live cattle appear to have softened a bit in the plains. In Kansas on Thursday 1,391 head traded at 119 versus an average of 119.35 last week.In Nebraska 4,352 head traded at 118-120 with an average price of 119.90 versus 120.32 last week. In Texas/Oklahoma 665 head traded at 118-119 with an average price of 118.81 versus 119.32 last week. The early selling yesterday drove June cattle all the way down to 115.70 before a strong recovery. US beef export sales for the week ending May 13 came in at 56,947 tonnes, up from 13,196 the previous week and the highest weekly total on record back to at least 2002. Packer profit margins are extremely high and the continued advance in beef prices this week could encourage a firm tone to the cash market next week. The USDA boxed beef cutout was up 14 cents at mid-session yesterday and closed 80 cents higher at $324.18. This was up from $316.78 the previous week and was the highest the cutout had been since June 1, 2020. It has increased for nine straight sessions and in 23 out of the last 24. 

U.S. stock indexes are looking to continue the rally heading into the final session of the week.  The markets saw a recovery yesterday after the jobless claims data was released showing that the labor market was continuing its recovery.  According to the Labor Depart Thursday’s data had the number of Americans filing first-time jobless claims at a pandemic low.  For the week ending May 15^th 444,000 people filed for unemployment which was below the analyst’s prediction of 450,000.  This drop in claims shows continued improvement in the labor market as more Americans are getting vaccinated and returning to work.  Even with the positive new data there still are 8.2 million fewer jobs than there was pre-pandemic.  The most recent jobs report had the U.S adding 266,000 nonfarm jobs while the unemployment rate increased to 6.1% missing the 5.8% and 978,000 predictions.

Support today is 411000 and 406000 with resistance showing 419600 and 422500.

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.

Stocks: A steady melt-up in the equity space yesterday right off the opening bell – the NASDAQ led the way +2.0%.  US Initial Claims hit a pandemic low mark of 444K vs 474K in the prior week, and the some members of the Fed began to open up the “QE taper” discussion.  Off the open all of the major indices are going to open up in immediate OB territory, with neutral and negative momentum.  All of the >6 mos. trends, except for Nasdaq (Neutral trend) remain bullish.  If markets continue to stretch, we may see another shift in momentum on Monday or Tuesday, but the probabilities suggest a pullback off the open – we’ll have to wait and see.  IVOLs remain at a PREMIUM in stocks. 

Energy/Oil: Energy including oil and natural gas signaled immediate OS at the close of business yesterday. The market told tales of US/Iran agreements, cease fires, and pipeline construction – all of which may be true, but the math said “Buy” yesterday.  So we allocated a small position long in Crude and Natural Gas. I think that’s why some struggle with my decision making process – because most investors jump from headline to headline and chase the market action. The facts in the model suggested that oil was bullish trend, AT the low end of the range, bullish inside of Scenario 2, and immediate OS. That’s really what the call boiled down too. 

BONDS/Yields: Bonds are going to open up immediate OB/Yields immediate OS. What’s the next catalyst for a jump in yields? Perhaps the US Non Farm Payrolls due out in 2 weeks. We had a big surprise miss in the headline number (missed by approx. 700K jobs), I’d expect differently this go around AND perhaps some sharp revisions. We remain bullish of US Employment from here.  UP in Yields, could also translate into DOWN Gold as well.  There’s a trade here I think. 

We’ve got some PMI and Housing data due up here shortly.