RJO FuturesCast

Gold traders are struggling to find direction. It seems likely to see tapering sooner rather than later, so last weeks rally has quickly lost steam. Sideways is a trend and easily traded while it lasts, but a market cannot trade sideways forever either. Gold has recently gone through a very sharp selloff and an equally sharp recovery bounce. But golds inability to breakout above $1,830 warns for trade to revisit August swing low of $1,677 range. If gold closes below $1,780 then $1,750 to $1,720 is in the cards. Of course, anything out of the Fed indicating a “delay” in tapering would be supportive to gold prices moving back towards $1,830 range. However, the strength in the dollar and the believe that the Fed will do the right thing has pressured gold below $1,800. Other precious metals like silver and platinum have also struggled to hold rallies and find direction.

It's my opinion that the Fed has created a dependency on easy monetary policy. We cannot depend on the Fed to always be there! It used to be easy to be bullish gold. You could always make an excuse…safe haven trade, trade it as a currency, or inflation hedge. The Fed needs to get out of the way and let traders detox cold turkey. Just my opinion. It won’t be easy, and it won’t be pretty, but it is necessary.

Oil prices are holding steady as of Thursday morning as demand concerns regarding the delta variant have been largely offset by production declines in the Gulf of Mexico. Reports are that only about 20% of oil production have returned, which equates to about 1.4 million barrels per day lost with the Gulf’s offshore wells making up 17% of US output. The EIA revised its 2021 oil production forecast by 200k bpd down to 11.08 million barrels per day. Weekly API data showed a smaller crude drawdown than expected with a greater than expected drawdown in gasoline and distillates. Oil still possess a strong inverse correlation on a 15-day duration with the US Dollar of -0.82 with the market remaining bullish trend as oil volatility (ovx) has fallen to the low 30s with today’s range seen between 67.21 – 71.36.

September has been a good trading month thus far for the bulls in cocoa. December cocoa moved to a multiyear high, but technically stalled around 2720 making that new resistance. Recent findings out of Ivory Coast’s production data shows that there will be a continued decline in supply. This is also being found in other key growing areas in West Africa. Lower production expectations mixed with stronger short-term demand has led to the recent rally in prices.

If restrictions begin to ease and Q4 data is stronger than the first ¾ of the year look for prices to continue to move in this direction. For now, weather appears to be a nonfactor in the soft and this market is mainly being driven by global supply and demand. Traders should continue to follow the technicals on pullback for entry and exit points but keep an ear on any changes to demand.

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.

After some consolidation on the daily December corn chart last week the market broke a bit lower this week but appears it may be finding support around the 200 day moving average (see chart below) couple the 200 MA around $5.04 ½ with the monthly May low $5.00 ¼ I mentioned in several articles and the market appears ready for a major move. Tomorrow's USDA numbers could be the catalyst to break this market lower or could cause this market to take off like a rocket. As I see it most of the negative news has been “baked in” to the current prices so in order to break it lower we will need to see some rather bearish numbers otherwise look out, we could see a nice pop. USDA Supply/Demand and Crop Production will be released at 11am cst tomorrow. If you would like to receive RJO Insights right after the Reports are released please email me your contact info and I will add it to my distribution list. 

The key numbers I think that are relevant to watch for December corn are $4.99 on the downside and $6.39 ½ on the upside – basically a breakout on the monthly chart, those numbers are based off December corn month of May high and low. Every month since then has been inside May's trading range. There are several, what I consider, minor areas of support and resistance inside that range that can help with short term market direction if violated. Call me at 1-800-367-7290 for more in-depth discussion on these numbers.

I would suggest using an option strategy to manage your futures position risk or an outright option strategy. Implied option volatility recently came down but 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.

The hog trade was down yesterday close to $2 for the October contract. Right now, the market is in overbought conditions and is expected for some long liquidation unless we see some better export numbers. China, being a major market mover, has imported 8.9% less in August as compared to a year ago. The USDA pork cutout, released after the close Friday, came in at $106.99, down from $108.19 on Thursday and $115.45 the previous week. In the last two years, the cutout has traded near $70.00 in early September. There is a lot of outside forces pressuring this market to the downside and if things continue on the international stage as they are with respect to the import and export numbers, then the market has some severe downside risk. I still like taking the short side of this in the Oct futures to $85 level, I would look to reverse above $92.50. The USDA estimated hog slaughter came in at 463,000 head Friday and 28,000 head for Saturday. This brought the total for last week to 2.398 million head, down from 2.438 million the previous week and 2.466 million a year ago. Friday's Commitments of Traders report showed managed money traders were net buyers of 4,182 contracts of lean hogs for the week ending August 31, increasing their net long to 83,389. Non-commercial & non-reportable traders were net buyers of 2,629, increasing their net long to 77,151.

Stock futures were up this morning trying to hold off a 4^th consecutive day of losses as traders are torn between a hot job market and the worries of soaring Covid-19 infections. Wednesday showed the DJIA and S&P 500 posting their 3^rd consecutive days of losses as the tech-based Nasdaq fell for the first time this week. The market has taken bad news in stride, but August’s poor jobs data put a damper on 4^th quarter strength. Another release by the Labor Department showed that open jobs hit a new record with nearly 11 positions remaining unfilled. New jobless claims came in today at 310,000, a pandemic era low. It yet remains to be seen how investors will try to sort the hot job market that is losing steam based on all the new cases of the Delta variant Covid-19 strain.

Support today is 449300 and 447500 with resistance showing 453000 and 454500.

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.