RJO FuturesCast

June gold futures have once again, showed strength over the past week pushing just short of the contract high of 1789 back in March, only to fall back toward 1735 as of this morning. It’s difficult to say whether we will be able to make new highs given the stock market strength, and the endless sideways price action over the past few months. One could just look at the chart of June gold and conclude on a daily chart gold is a buy around 1675, and a sell around 1750 and it’s been that simple. Gold ETF’s continue to expand their physical for the 20^th straight week, unrest in Hong Kong with China’s recent crackdown, and explosive federal government spending are all reasons to be long gold.

The technicals though, again, seem to have the edge here as we saw strong above average volume yesterday and a solid close lower. Today we have minor strength but likely an inside day in the end. The April 22^nd and May 1^st spike lows in gold are a clue to where the near-term bottom is, which is around 1675. The same could be seen around 1750. Volume is a big clue when coupled with price action to see what’s really going on in gold (or any market for that). Traders right now need to position themselves for a neutral to moderately bullish outlook, and custom strategies based on your market bias and risk tolerance can be created by contacting me directly.

Silver futures hit the highest price since mid-February this week touting an impressive rally from April lows, powered in part by investors moving towards safe haven assets and fiscal spending. Silver typically lags as a precious metal behind gold and for this reason tends to be more volatile, its use in an industrial setting makes it primed to be sensitive to the global economy. We have seen traders continue to be bullish on silver as extremely low interest rates and countries re-opening their economy  as made the metal more attractive. Silver making another high while broader market uncertainties still exist and continues to trade at a discount to other metals should be supportive to prices. Traders will be watching in the coming months for signs of inflation and monetary overspending.

July silver has resistance at $17.95, if we seem some early pressure into the session we will need to see Silver hold $17.45, otherwise we may see a move lower. Profit targets for July Silver remain at $18.20 on the upside and $17.15 to the downside. Momentum indicators point to a short term pullback which will need to be watch when trading towards these areas of support and resistance on the July contract.

Oil for July delivery has continued to forge higher highs amidst reports of favorable Chinese demand prospects as the Chinese National Petroleum Company forecasted a 2% year over year increase in imports as well as an increase in consumption of 1% to 2%. This has been coupled with reports that Asian-Pacific refinery run rates are increasing due to an uptick in product demand. In addition, EIA crude stocks fell 4.982 million barrels with reports of a decline of US crude oil stocks of nearly 16 million barrels since May. OPEC and allies have agreed to cut by a record of 9.7 million barrels per day from May 1 with reports that oil exports have been cut by about 6 million barrels thus far. Notwithstanding, oil volatility (OVX) remains highly elevated with the market remaining bearish trend and signaling immediate term overbought with today’s range coming in between 22.61 – 36.77.

Looking at the July cocoa chart, traders could see the contract has found support. The move higher has been a grind, but prices above 2400 may be here to stay in the short-term. Technically, the chart is showing resistance has been broken and a new consolidation range has been found. A close above 2440 is needed to have the momentum continue.

Fundamentally, production levels have been lowered due to crop issues. Rainfall has been scarce after output was already affected by dryer than normal conditions earlier this year. Traders have been waiting for a pullback in supply to help boost prices. The bulls have also anticipated the demand in cocoa to gain ground and it appears to be moving that direction. As parts of the world re-opens and the global equity markets try to recover losses from the past few months, the “food” commodities are following the trend. Cocoa demand should grow as more locations find the new “norm.”

Traders should have patience and look at key technical levels and supply and demand indicators to decide which path to take on trades.

The coffee market continues to trade in a volatile swing range, with prices battling between the July futures range of 105 to 112. While the markets continue to gauge the delicate process of all U.S. states now slowly re-opening, the verdict is still out on what demand for coffee will be. We know that the at home consumption has not been able to take up the slack left by the absence of the restaurant business, and it seems logical that it will be some time until people congregate in such a way that the level of demand returns to where it was. Businesses still must adhere to social distancing policies, which result in less customers walking through the door, waiting in lines, etc. 

On the supply side, we still have a potentially huge Brazilian crop on the horizon that has likely kept the bulls at bay. Our friends at The Hightower Group have reported that “a very large Brazilian crop have kept prices from sustaining upside momentum”. Although these factors have been able to add pressure to coffee prices, the recent rally of U.S. stocks will assist in lending these prices some level of support, at least for now. Fresh bullish news in the way of recovering demand will be needed to support coffee prices in the long term, and we should continue to see some volatile swings the near term while we continue to wait out any potential vaccine for COVID-19.

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.

Corn futures continue in a consolidation trading sideways waiting for a catalyst to push the contracts to a new low or high. The re-opening of the global economy should be positive for the corn market in the months to come, since fuel demand should see an increase. Although a shortage of corn is not expected in the new season, corn contracts sitting at a five-year low and traders expecting seasonality patterns to push and support higher prices should be evident. According to the latest EIA data ethanol stocks in the U.S. have begun to decline. This is a consequence of the weakening of isolation measures that we originally put on in cities across the globe. Traders see that corn is generally positive technically with good support in the area its consolidating at and may see an upward correction in the near term.

July corn has price support at 315 ¾ and a break of this should see a move to 314, momentum studies should be watched as this will help traders identify oversold levels at this support. A break of resistance at 319 ¾ should accelerate a move to test 322. Traders will watch for short covering to move past these levels of resistance and an end to the consolidation that we have seen.  

Stephen Davis discusses the latest news in the grain markets. This week we saw China buy U.S. soy and cotton, as economies open up we are slowly starting to see some normalcy.

U.S. dollar futures are roughly 40 points higher Friday morning as foreign fiat futures trade in the red. The greenback has moved sideways for two months, fluctuating between 98 and 101 as optimism levels waver. For the bulls to regain control, look for a close above 101. This will likely occur if weakness takes control of the equity markets again next month. The other side of the dollar trade is the euro. Earlier this week, the euro ran into resistance at the 38.2% Fib retracement level for the third time in two months. Once again, the currency sold off from the 1.10 level. The fundamental story supports non-dollar currencies over the intermediate/long-term. Technical cycles point to strength in the euro over the summer months. Look for a close above 1.1028 followed by a run to 50% retracement at 1.1110. Any positive vaccine news is likely dollar bearish. Watch for strength in equities to support foreign currencies as well.

Weakness in Asian markets drove the indices down considerably last night. Concerns over tensions between China and the United States and China and Hong Kong were the main reasons behind the selloffs. While the Hang Seng losses reached over 5.5%, the domestic equity markets have bounced back nicely. The S&P, Nasdaq, and Russell are all considerably off their lows and briefly found themselves back in positive territory. The Dow remained slightly negative but more than 200 off its overnight low. The recovery is pretty impressive as the weakness easily could have spurred significant profit taking ahead of the long weekend. The market continues to discount much of the horrid economic data, and with reopenings on the rise, those figures should improve. The re-opening process could also lead to a spike in deaths and infections as a result of increased COVID exposure, but there seems to be some reasons for optimism out of states that are already a bit further along in the process. 

Technically speaking, the mini S&P continues to struggle with the 200 DMA.  Yesterday’s action marks yet another rejection at the 2960 level.  The upside momentum is tapering off a bit, and we seem to have established a bit of a sideways to higher channel over the past several weeks.  If we’re able to test the lower end around 2800-, I would probably consider looking at ways to speculate further upside. 

Looking at the June 10-year note, we have a range today of 139.05-138.25 and currently sit at 13829. Economic news today is light as treasuries are taking their cue from stocks which are currently very strong today, but off their highs. Later this afternoon we have the FOMC minutes, which are minutes of the last policy statement.  Traders should be on guard for any verbiage or mention of negative rates as that will sure be a market mover. 

Looking at technicals in the June 10-year note, the market is behaving rather nicely as the short-term trend points to higher levels, but traders should key off the 40-day moving average which currently sits at 138.245 which coincidently is right near the low of today. If we can stay above that number on a closing basis, look for the market to grind a bit higher. If that level gives way, we could see a push down to 138-16. I want traders and investors alike to be cognizant of all the money the Fed has been printing since the pandemic has started.  The amount has been off the charts and the effect will cause a spike in inflation. This is the last thing the fed wants as 30+ million Americans are out of work, but the Fed would rather see consumers start to spend and get the economy up and running then worry about inflation. But don’t look now, we could see a real spike in the near term so be on guard.

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.