RJO FuturesCast

In the early morning trade, gold has pulled back from this week’s high after finally breaking above $1,800 an ounce, but is currents trading at $1,767 an ounce. Yesterday, gold started to sell off from its high largely due to positive news that Pfizer and a biotech company out of Germany have made a promising drug for the Coronavirus, which Dr. Fauci stated could be available to the public later this year. Furthermore, gold continued its sell off this morning due to the very positive jobs number with unemployment falling to 11.1% in June with employers rehiring 4.8 million American, which is the highest record EVER recorded. Are we on the cusp of The Great American Comeback? If this trend continues-we sure are. Happy Fourth of July weekend to all!

If you look at the daily August gold chart, you’ll clearly see that gold broke below a long term up trend and now is open to a possible sell off back down to the low $1,700s unless it rallies back today. If it can hold, look for gold to rally back to $1,800 an ounce.

September silver has traded adjacent to the strength in gold, and the second wave of the virus could very well add more support in the contract. Prices have rallied significantly from March, so a consolidation at these levels would be warranted. That being said, safe haven demand remains steady, and interest rates in this environment make this fundamentally sound and attractive to traders and investors alike. It should be noted that inflation data will also be closely watched as a key fundamental, the more that the Federal Reserve acts to prevent other market declines through fiscal policies we will see undermining and destruction longer term in other market prices.

September silver is undergoing consolidation and the $18.00-dollar level remains in focus as a key level of support for bulls. If this level fails to hold, consolidation may not be intact, and a test of the $17.80 level will be tested. In order to see the contract trade at the $19.00-dollar level and beyond we will need to test $18.70 and $18.90.

WTI crude registered its highest quarterly performance of more than 91% and is trading at its highest level since early March but is still down over 34% from the start of the year as the market assess enhanced demand prospects, despite recent reports of lowered Chinese imports as well as ongoing fears of corona lockdown in the U.S. This comes amidst data showing U.S. crude stockpiles fell more than expected from a record high last week as refiners increase production and imports ease. Prices have been buoyed by recovering fuel demand and supply cuts from OPEC plus, with some focus on the upcoming U.S. holiday driving activity as well as how expeditiously U.S. producers revive shut in production as U.S. companies and OPEC producers start to increase output due to higher prices. Oil has now transitioned to bullish trend as the reflation ramp up continues with today’s range seen between 36.92 – 41.22.

As the world, especially in the United States, sees an increase in Covid cases some commodity prices are weakening. Cocoa had a small rally but failed to trade and hold above 2400 in the September contract. As the old lows were tested the past few sessions, on Tuesday 2200 was broken. Demand has been a long-term issue for cocoa even before the virus spread but now that less cocoa is needed for consumption the bottom could be unknown. Will 2000 be the next downside target? If more re-openings are paused, indoor restaurant seating remains closed and sporting events are delayed any further “food” commodities could continue to take a big hit.

Food companies remain positive that the markets will turn around, demand will return, and things will go to a new “normal” once the pandemic is under some control. But for the time being, it appears we are a long way from that.

Bearish traders may want to look at long puts in the front months. Traders who anticipate a recovery will want to look further out, 2021 options for example, to have exposure once the softs recover.

As several States begin to shut down after just re-opening due to the spread of COVID 19, we can expect yet another challenge on the demand side for September coffee. This new shutdown will be weighed against recent reports that temperatures in key growing areas of Brazil are colder than normal, thus possibly delaying and affecting the upcoming crop while frost damage becomes a real possibility.  September coffee futures recently broke out of consolidation due to the reported temperatures in Brazil, and coffee prices have been able to hold support at the 95 level.

From a technical perspective, a likely return to the 50-day moving average at the 104 level is likely to take place in the near term. However, ultimately may see stiff resistance at the 50-day moving average as the await the effects of the recent increase in new cases, which will likely delay a reversal to the upside for September coffee prices.  

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.

The dollar index is marginally lower this morning after non-farm payrolls added another 4.8 million jobs in June, bringing the unemployment rate down to 11.1%. Buying the dollar has become a ‘risk-off’ trade. As long as optimism remains present in the markets, the dollar is likely to extend its downtrend. Currency markets are often useful in forecasting macroeconomic movements. Commodity currencies, like the Aussie dollar, are showing relative strength. This may be an indication that commodity prices are likely to continue their climb higher from the March lows. The USD is continuously failing at resistance levels, leading me to believe that stimulus may spur inflation down the line, and there may be more fiscal/monetary support coming out of Washington. Keep an eye on the Japanese yen if a ‘risk-off’ mindset returns to the markets. Over the intermediate/longer-term, the euro is likely to gain strength against the dollar given the arsenal of tools being applied by the U.S. central bank.

The September 10-year note is trading back to contract highs seen in early May. The Federal Reserve has slashed interest rates to nearly zero along with pumping $2 trillion into treasuries and MBS. Traders will be watching the June Chicago PMI which is expected to have an uptick from May’s reading. It should also be noted that Powell will be testifying in front of the House Financial Services Committee during trading hours today. The 10-year note contract had an open-interest increase of nearly 180,000. Traders will be positioning themselves ahead of Wednesdays release of the feds previous minutes.

10-year September contract has support 139’075 that it has found buyers at before in the short term. If this level fails we can see a quick re-test of 139’35 which has been greater support in the past. If these levels hold we may get a test of resistance at 139’140, a break of this we may test a greater point of resistance at 139’150.

The most hated rally in recent memory continues to power on. I get it. Things aren’t exactly rosy out there. However, the market continues to discount the perceived risks, and we’re up roughly 1.5% in the four major indices. Consensus expectations for this morning’s nonfarm payrolls was 3,000,000. We saw a number of 4,8000,000 and an upward revision of last month’s number from 2,509,000 to 2,699,000. The unemployment rate, which was anticipated to come out at 12.4%, was reported at 11.1%. Private payrolls and manufacturing jobs were huge contributors. The private sector added over 4.7M jobs vs. expected 2.66M. We also had a revision on last months number of an additional 138k.  Manufacturing jobs increased by 356k vs. an expected 180k. There was also an upward revision ther of an additional 25k manufacturing jobs in last month’s number. On the flip side, we saw average hourly earnings dip by 1.2%. 

The Fed is doing all they can to support the economy. There is a legitimate argument about who is benefiting from their actions, but that’s a conversation for another day. The bottom line is that betting against the Fed has been a tremendous way to lose money over the years. It’s hard to say where all this will stop. The virus is obviously the biggest headwind here. The concerns are legitimate, but the market seems to be optimistic about the prospects for a vaccine.  Suppose we have one in the next six months. My biggest question is whether or not that has been priced in, or if we’ll end up having to chase the market at higher levels as a result. Dip buyers continue to get paid in the interim. 

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.