RJO FuturesCast

July 15, 2021 | Volume 15, Issue 28

The Markets

Metals - Gold is Looking Good

I think it’s now safe to say that gold has bottomed and is set to breakout to the upside. Yesterday’s close above $1,820 should encourage gold bulls to get more aggressive. Two things we need to see to confirm a secondary rally would be a pop through $1,838. That is the next resistance level and where the 50 DMA and the 200 DMA converge. A move above $1,838 will begin to drag that 50 DMA above the 200 DMA. Once that happens, you’ll hear all the talking heads pointing out the “golden cross” in gold. Hopefully Jay Powell’s testimony doesn’t mush this setup. He is at least acknowledging that inflation is moving faster than they expected. Just look at this week’s CPI and PPI. Inflation is heating up and Washington wants to pour more gasoline on the fire. Runaway inflation is unavoidable in my opinion unless we plunge into some unforeseen financial crisis. Inflation will be what takes gold back above $2,000.

Gold Aug '21 Daily Chart
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 - Oil Prices Recovering Off Supply Increase

Oil prices have extended their sell off early Thursday but are coming off their low as the market assess the prospect of an increase in supply as OPEC+ agreed to a comprise coupled with an unexpected increase in fuel stocks. Weekly inventories saw its largest decline in oil stocks in months with its eighth consecutive draw of -7.896 million barrels and gasoline stocks building +1.1.038 million barrels despite a drop in refinery utilization, according to the EIA. Notwithstanding the prospect of more supply, demand growth should continue to outpace with China reporting record processing in June. Oil volatility (OVX) continues to remain relatively subdued with the market remaining bullish trend with today’s range seen between 71.64 – 72. 35.

Crude Oil Aug '21 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or aturro@rjofutures.com.
Softs - Demand for Cocoa on The Rise

Grinding data came in better than expected for cocoa. As traders waited for the data to be released, we saw new lows put in the September Cocoa contract. European grinding data came in much higher than last year’s numbers causing a two-day rally in the market. Since the release, we have seen pullback, most likely profit taking. The world continues to slowly reopen but as that happens, Covid cases appear to be on the rise in pockets. This uncertainly and constantly changing data is one of the main reasons for market volatility. Technically, the recent rebound has created new support. If the market can trade and hold above 2400, look for more buyers to be attracted back into the market. If clients want exposure for the chance that the market recovery holds, look at further out call options. The demand will eventually return, but the question is when and what will have to take place for investors to believe in the longer-term positive outlook.

Cocoa Sep '21 Daily Chart

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or pmooses@rjofutures.com.
Agricultural - Grains - Special Alert Corn!

In today’s Grain Market Insight, I am going to focus solely on the corn market. If you would like to discuss any of the other grain markets or receive detailed insight on them, feel free to reach out to me by email or phone. The hot and dry mid-west weather has continued to be of concern and should be to an extent. While we have seen the good to excellent crop rating slip over the last several weeks, we have also seen some rain in several areas just in time to help alleviate additional stress. Now that we are moving through the crucial pollination stage with just enough rainfall in some areas and not overly hot temperatures, we need to look at how much weather premium could come out of the market and I see signs that the market may be ready to just that. Historically, looking back at the market even in big up years like 96, 08, 11 and 12, the market has a strong tendency to seasonally move lower around this time. When we look at the corn monthly chart, we can see market consolidation over the last 3 months. Although the monthly trading ranges for May, June and July have been quite large the market really hasn’t gone anywhere. There are several minor support and resistance levels inside the range but I see the major breakout areas above $6.58 and below $4.97 (see shaded area on the weekly chart below).

I would suggest using an option strategy to manage your futures position risk or an outright option strategy. Implied option volatility is still relatively high compared to historical vol levels. You may want to incorporate some short options into your strategy in a calculated risk manner such as bull or bear option spreads. I have 25 years of grain market experience, please feel free to call me at 1-800-367-7290 for more details or to discuss in depth trading strategies. Also be sure to check out my past weekly grain market updates posted on our website.

Corn Sep '21 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 msabo@rjofutures.com.
Agricultural - Live Cattle Mixed

August cattle had a little bit of profit taking yesterday as the market closed at 121.25. This is a 38% retracement from the June 16th highs and the lows made on July 9th. Currently the Aug cattle contract is trading at a slight premium over cash, but the volume traded on the cash market this week so far has been extremely light giving the futures market any sort of guidance or indicator. Cash live cattle prices drifted lower on Wednesday, but the picture is mixed. In Nebraska 3,262 head traded at 117-120 at 123, down from an average price of 124.60 on Tuesday and 123.87 last week. Prices in other areas were lower. However, the 5-day, 5-area weighted average price as of Wednesday was 122.44, up from 121.33 a week ago. Slaughter weights are relatively light so it will be interesting to see if they stay at current levels or start to increase as we get into late summer. The USDA estimated cattle slaughter came in at 119,000 head yesterday. This brings the total for the week so far to 360,000 head, up from 247,000 last week and 350,000 a year ago. The USDA boxed beef cutout was up $2.45 at mid-session yesterday and closed 46 cents lower at $272.88. This was down from $284.90 the previous week and was the lowest the cutout had been since April 13.

Live Cattle Aug '21 Daily Chart
Equity - Stock Futures Lower Ahead of Powell Testimony

U.S. stock futures are trading lower today before commentary from Jerome Powell, the Federal Reserve Chief, on the state of the economy and monetary policy. The major indexes are trading near all-time highs as e-traders see the economy rebounding and better than expected earnings from the corporate sector. However, some analysts are warning that stocks will struggle in the coming months because of the new increase in Covid-19 infections and the impact of global re-openings. U.S. jobless claims released today checked in at 360,000 a drop of 26,000. This is the lowest number since the pandemic started and a great indicator that the economy and job markets are quickly rebounding. The impressive jobs number also saw the 10-year treasury yield drop to 1.32%.

Support today is 435000 and 433500 with resistance checking in at 438500 and 440500.

E-mini S&P 500 Sep '21 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.
Economy - Futures Market Outlook w/John Caruso - 07/15/2021

Back to back heated inflation numbers over the past two day’s shouldn’t come as a surprise to any of us – June US Producer Prices +7.3% y/y and +1.0 m/m vs +6.6% and +0.8% previously in May. We also heard some dovish remarks made by Fed Chairman yesterday to Congress, attempting to quell any fears of a taper tantrum. Powell suggested that the labor market was not in a position yet to warrant immediate Fed action on a taper. Inflation has risen above the Fed’s expectations, but likely is “transitory” and yada, yada, yada. Today is day 2 of Powell’s testimony to members of Congress. 

-Oil took a > 3.00%  hit yesterday on OPEC reaching an agreement on production increases….furthermore, headlines this morning suggest that the US may be soon looking to lift sanctions on Iran, likely taking the first steps towards redrafting the Iran Nuclear Deal that was disposed of during the previous administration. Oil down another -1.55% overnight.

-US Initial Claims just hit the tape and fell 26K w/w to 360K – our view on labor trends remains positive and will likely continue to ramp up over the next few consecutive months.  Rising wages in the monthly data we believe will be a key focus of the market in the next several labor reports, and also a contributing factor to the “sticky” inflation view. 

-Small Caps took a lick yesterday, -1.6%, extending losses from Tuesday. The Russell 2000 is the only major index carrying negative momentum, and is now triggering immediate OS.   

Currencies- the USD tracking higher this morning, after another failed breakout attempt. We’ve mentioned the prospects for a period of upcoming Dollar strength, and further weakness in the Euro. The ECB meets next week, and will likely double down on their dovish pivot from June – pledging more aggressive PEPP (Euro QE). 

Metals- tightening ranges in the metals = falling volatility. We own a small position and gold and are interested in grossing that up over coming weeks – silver too. However, gold is now beginning to give me “more positive” signals than Silver in terms of momentum changes. We’ll bring you more in coming days.

The game is getting harder, we’ve recognized this change in market dynamics over the past few months – and still believe we’re in a transition phase. Pay attention. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or jcaruso@rjofutures.com.

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