RJO FuturesCast

September 11, 2020 | Volume 14, Issue 37

The Markets

Metals - Gold Futures Continue to Consolidate

It’s not unusual for a market to trade sideways after a huge rally and subsequent correction. The market usually needs to take a “breather”. Figures things out. Was the rally justified? The answer to that question is yes, absolutely. So, we’re left scratching our heads now because gold can’t seem to break out and hold above $2,000. Nothing has really changed in all the various bullish arguments. ETF inflows continue. The Dollar is still weak. The Fed has promised to keep rates low for long, and to allow inflation to overshoot its target rate. Has all the uncertainty gone away? Of course not! Fiscal stimulus has stalled but that’s just politics. There’s more to come…

There’s a clear and definable trading range. I still think that we will see $2,100 before $1,800 and that you should play gold from the long side with some Put protection. The market could trade sideways for a long time, but not forever. Perhaps we just went too far too fast. All the bullish factors that drove gold prices towards $2,100 are still here today and not likely to go away. The Fed can print money but it can’t print gold and we will start to see gold supplies tighten and then its off to the races.

Gold Dec '20 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.
Metals - Silver in Decline, Still Higher Than Last Year

December silver started this holiday shortened week trading down to a low of 25.985 before coming off that low and trading sideways the rest of the week. There haven’t been any major economic data surprises to push this market one way or the other with the ECB meeting not showing any indication of fresh stimulus and today’s US inflation reading looking to come in line with expectations. Recently the silver market is following the U.S. dollar moves, which has seen some strength lately, hindering a push higher in silver. Also curbing any move higher is disappointing demand with outflows in silver ETFs. This has been the sixth straight decline but despite that, silver holdings are still above levels from this time last year. The December silver contract has support at 26.30 and then the 25.00 level with resistance at 28.10. The market would need to close above this week’s high of 27.755 in order to get back to a trend higher and test resistance levels. As of now I think that is going to depend mostly on what the US dollar and the stock market does. It will also be interesting to see if silver remains trading like a commodity, in line with the stock market, or goes back to the traditional relationship, seeing strength in a risk off environment.

Silver Dec '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or therrmann@rjofutures.com.
Energy - Oil Lower on Rising Stockpiles Amid Weaker Demand

Oil prices are softer once again in the early session after falling nearly 2% on Thursday as the market was pressured by an increase in stockpiles as the virus continues to weigh on demand prospects. US refinery rates continue to be subdued, which would only set to add to oil stocks in the coming weeks. Onshore storage remains near capacity with floating storage seemingly in play as low financing and the current spreads between contracts for delivery are more favorable for the sale of oil later. A monitoring panel of OPEC+ are scheduled to meet on September 17th with the focus on compliance rather than a revision of cuts. Prices are down about 6.5% on the week and headed for a second week of declines with the market now transitioning to neutral trend. Oil volatility (OVX) continues to teeter that bull/bear line of ~54 with today’s range seen between 35.63 – 40.95.

Crude Oil Dec '20 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 - Coffee At Overbought Levels

While December coffee futures continue to garner support from all-time highs in the U.S. stock market and steady demand, the futures are beginning to reach overbought levels and traders should use caution at this point. Ongoing supply issues in Central America and Columbia have added good support under December coffee prices. Our friends at the Hightower Group have reported that “while it is possible that large quantities of Brazilian Arabica will be certified deliverable, it is unlikely to occur which will keep those stock levels near multi-decade lows. In addition, supply issues with Columbia and Central American producers should help to keep coffee prices fairly well supported.”

As we continue to struggle with revenues of restaurants and coffee shops being weighed down severely by limited occupancy, more and more of these cherished businesses will continue to vanish permanently. In addition, the likelihood that many small businesses will be in a hurry to return to urban areas where riots have taken place just adds more pressure and uncertainty to an already grim outlook. From a technical perspective, a recent break above the 129 level, followed by a sizeable corrective pullback, should be viewed as bullish. Resistance should be found at the 135 level and support at 120.

Coffee Dec '20 Daily Chart
Agricultural - Grain Futures Update w/Stephen Davis 09/10/2020
Stephen Davis discusses the latest news in the grain markets. China is still aggressively buying U.S. corn and that is good news for the grain market as a whole.
Currency - USD Biased Towards Bears

While the dollar index is tracking lower early today, the definitive rejection of yesterdays strong spike down washout certainly tempers the bear case. Further, it would appear that yesterdays low of 92.70 is some form of important technical level as that level saw 3 consecutive closes clustered at that level and it appears that selling is quickly dried up at that level yesterday. In retrospect, it seems that the dollar has regained interest as a safe haven instrument even though anxiety in the marketplace is currently benign. U.S. claims data from yesterday rekindles fear that the U.S. recovery pace is slowing and it goes without saying that the inability of the U.S. senate and the ECB to provide assistance, adds to interest in the dollar. For the time being, the 92.70 level could be a target but without a very positive economic/psychological headline we doubt the index will punch below that level.

USD Weekly Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or tcholly@rjofutures.com.
Interest Rates - Interest Rates Trending Sideways After Halt in Covid-19 Vaccine

Looking at the December 10-year note, we have a high for the contract at overnight 139-200 and a low of 139-095 and are currently trading 139-125. Yesterday, after the close, a big pharmaceutical company came out and said they were halting trials on a vaccine for Covid-19 due to some side-effect induced complications. This development sent stocks sharply lower early in the overnight session and sent the notes to the high of the night at 139-200. The euphoria ended rather quickly, and stocks regained their footing rather and are showing some decent strength this morning with the S&P up 60 as traders finally bought the dip after three days of carnage. Whether the gains will be sustained will be determined at the close today as the notes will likely trade opposite of where stocks are going. Technically, the notes are trading in a sideways to down pattern as the market looks to retest lasts weeks low at 138-22. If we break the price, we could see 138-08-10 area, but if that level should hold a test of last nights high looks to be in the cards. Traders should be watching price action in stocks today and if we can see weakness later in the day, notes certainly could catch a bid.

10-Year Note Dec '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or gperlin@rjofutures.com.
Equity - Negative News Weighing on Equities

While the markets were higher in the early going today, they’re backing off, and the last few sessions have been far from pretty.  Yesterday’s failure to pass another stimulus package provided the fuel that the bears needed to drive this market lower yet again.  It is looking increasingly likely that there will not be a stimulus package before the election in November.  Election years continue to get nastier, everything is political now, and we’ll just have to deal with it for the next seven and a half weeks.  Risk has returned to the market, and it appears cash is on its way to becoming king again.  Those that have been condemning the rally for months now seem to be beating their chests on the airwaves these days, calling it a bubble, talking about how badly this will end, etc.  They may be right, but the selloffs (aside from the corona virus driven selloff) have tended to be pretty short-lived.  That said, with the upcoming election, the FOMC meeting next week, Coronavirus cases reemerging in Europe, and so on, there is certainly plenty of reason for the dip buyers to be a little more protective of the profits they’ve accumulated over the last several months.

E-mini S&P 500 Dec '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or bdixon@rjofutures.com.

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