RJO FuturesCast

December gold has seen volatility kick up quite a bit over the past few weeks. After the enormous rally through 1550, gold appears to have lost a bit of steam with a move back down to 1500 in recent sessions. Even though the stock market appears to be chugging along just fine toward the record high once again, shrugging off market concerns of a recession. The past 24 hours for gold has been quite exciting with the quick $30 pop up to 1532, only to quickly retreat back to 1507 on the close. This was due to the ECB cutting rates once again to negative territory at -.5%, along with $20B in monthly bond purchases as the Eurozone restarts their QE program. Europe is growing at 1% right now which is less than half the pace of the U.S. economy, a bullish development for gold. The trade war with China and the U.S. isn’t going anywhere, despite hope for an “interim” deal or talks in early October. There are too many thorny issues that will prevent a deal in the short term, and China will continue to try and delay any meaningful talks as tariffs are likely to be increased.

The one and only thing that I believe would be holding gold back and potentially trigger a washout below 1490 is the managed money position in the market being at an all-time record long 289,000 contracts. This is quite sizeable, and a lot of the buying power might be factored into the market already. If we hold 1500 and continue to make healthy moves higher in gold we should be okay and move toward 1600, and if managed money puts the foot on the brake we could be in for some real pain down to 1460 as the next stop.

Dec ’19 silver futures are trading in the same narrow range they have been since September 9th as the rally pauses and global anxiety seems to stabilize. Silver prices have been supported by a softening dollar index and bullish ECB news. As the fear of recession fades and the trade war simmers down the confidence in other markets, it puts pressure on the top heavy precious metals. Bears are cautious to be short on silver though because a single tweet could wipe out the positive tone in other markets. Silver according to my analysis is still undervalued compared to gold, which could provide opportunity for the bulls.

Crude oil has continued its long liquidation from Tuesday’s high following the removal of U.S. National Security Advisor and war hawk, John Bolton, which relieved Middle Eastern anxiety and subsequently prompted speculation of an increase in Iranian crude oil exports through sanction relief. OPEC, in their monthly report, adjusted their 2020 global demand forecast from 1.14 million to 1.08 million barrels a day (bpd) amid a continued slowdown in global growth. In addition, OPEC advised oil producing nations to continue curtailing production in order to avert a global glut. This comes amidst the EIA revising their 2019 world demand growth by 120,000 bpd and their 2020 forecast by 30,000 bpd. U.S. oil production forecast was downgraded to from 1.28 to 1.25 million bpd notwithstanding the U.S. becoming the world’s largest oil exporter, surpassing both Russia and Saudi Arabia, amid record shale production. However, with expectations of tempered demand growth and lower economic expectations coupled with ongoing geopolitical risks, oil prices are set for extended near term volatility. The market in the early session was signaling immediate term oversold but remains bearish trend with today’s range seen between 53.89 – 58.32.

This week’s comment finds sugar again carving out new lows for the move. The March ’20 contract has traded below 12.00 at the time of this writing and it is difficult to see what might halt the decline. Near- term supplies are ample, and talk of 2020 production deficits are falling on deaf ears so far.  It doesn’t take much imagination to see sugar continuing to have trouble finding support. In recent years, sugar has found support at these levels and at this size of market participant position. The fund trader short position is record large and the funds have shown a propensity to cycle out of positions when they reach this level, moving the market to the upside.

 Wire services and commentators continue to pitch next year’s deficit projections. If production declines do happen then higher prices will be in order. Until then, the market must contend with abundant upfront supply and a technical picture with no lower boundary. Trend follower stops are almost a full 100 points overheard. For March sugar, the 18-day moving average comes in at 12.23 and the 50-day at 12.70. Don’t expect the March sugar futures contract will require a real fundamental to turn and head for the moving averages. Positioning for a move to the 50-day moving average, 12.70 in the March contract, with shorter timeframe options could be a lower-risk way to play.

Dec ’19 coffee continue to rally for a second day after closing above the range it had been consolidating in on Monday. Managed funds are still heavily net short on this commodity and could provide a significant amount of fuel to rising prices by simply covering their shorts and stepping to the sidelines. My analysis suggests we could see Dec ’19 coffee reach up to 118’00 again this fall with strong support from both supply and demand aspects in the fundamentals. Dry weather in Brazil currently could impact the coffee trees ability to flower which may stress impact the next production season as well. If the fundamentals continue on a bullish track and inspire managed money funds to convert from today’s shorts into tomorrow’s longs, coffee could become a full-blown bull market. 

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.

December corn had an impressive day after a slightly bearish report, closing higher and following through this morning.  The USDA report showed yields at 168.2, compared to estimates around 167, but still dropped from August report of 169+.  Projected 82 million harvested acres remained unchanged from August but remained higher than estimates of 81.3 million acres. The USDA increased ending stocks by 85 million bushels by lowering ethanol usage by 50 million bushels and exports 25 million bushels. Corn imports were lowered by 5 Million. When you see a market rally on bearish news, it’s a pretty clear sign that these numbers were already priced in and may have been pricing in even more bearish numbers than we received. Last year, the September report raised yield by 5bpa and within 5 days the seasonal lows were put in. Resistance is around 374 and 378 today with support coming in at 360 and then all the way down at 349.

The cattle market saw a strong turn around yesterday with June cattle gaining $2, finishing at $106.225. The sense of a break being overdone, along with a record packer margin helping to stabilize the cash market is what seems to have been the catalyst to help spark the turnaround in futures. December cattle tried to break through the $99 level, but failed to do so and had a strong turn around to the upside. There were more rumors coming out of China that they will extend an olive branch by lifting tariffs on agriculture products which also helped spark the buying in the market. The June contract is at a resistance level right now, but if there is no negative news for the rest of the week, I suspect this market to have some follow through today and try to fill the gap the rest of this week into next. If we trade above the August 22^nd high of $106.775, I would see this as confirmation as a turnaround in the beef market. The USDA estimated cattle slaughter came in at 116,000 head yesterday. This brings the total for the week so far to 231,000 head, up from 116,000 last week (which was shortened by the holiday on Monday) and down from 239,000 a year ago. USDA boxed beef cutout values were down 63 cents at mid-session yesterday and closed $1.57 lower at $225.38. This was down from $230.66 the previous week. Only a small amount of cattle traded in the cash market Monday but at lower prices than last week, with Iowa/Minnesota at $97.00 and some cattle in Nebraska at $97.00 as well. Nebraska traded as high as $109.50 back on August 22nd.

September U.S. dollar futures are down another 28-points Friday morning after Thursday’s selloff from the 99 level. Proceeding the ECB meeting yesterday, dollar futures soared while the euro slid to new contract lows on news that Europe’s central bank cut their benchmark interest rate another 10 bps to -0.5% and agreed to buy $22 bn worth of bonds each month starting in November. This level of stimulus is an attempt to keep recession at bay in an economy that is clearly feeling the impact of President Trump’s tariff war. However, currency markets were quick to reverse the initial reaction to stimulus, with euro futures trading back above 1.11 Friday morning. From a technical perspective, the euro appears to be near a bottom given last week’s morning star reversal pattern on the chart. Adding support to this theory is that the U.S. dollar showed an evening star pattern on its daily chart last week and has since failed to move above that high. Fundamentally speaking, this makes sense.

European rates are negative, indicating that they do not have much more room to cut (10 bps is hardly a sizeable reduction). On the contrary, U.S. rates are not only positive, but are substantially higher than rates in other developed economies. Therefore, the Fed has more “bullets in the chamber” when it comes to rate cuts as a means of stimulus. The U.S. dollar index is weighted against six other major currencies, most heavily the euro. This points to a topping in the U.S. dollar, likely in October, and simultaneously a bottom in the euro.

Meanwhile, the yen is seeing stronger sell-offs. Its purpose as a safe-haven currency is no longer attractive to investors because of the easing in economic uncertainty. Last week, Donald Trump announced a resumption of China trade talks which put global markets at ease. Sound familiar? Waters seems to be warming between the two economic superpowers, but I still do not believe a trade deal is imminent. China believes they’ll get a better deal with a different president, so they’ll try to postpone a deal so long as there is still hope of a competent democratic challenger. Until then, expect volatility.

Stock futures are looking to open higher on Friday with growing optimism on the trade talks between the U.S. and China, along with a domestic retail sales number that exceeded expectations. President Trump calmed the markets Thursday by tweeting, “It is expected that China will be buying large amounts of our agricultural products.” 

China’s Xinhua News Agency corroborated this Friday morning buy saying that “The Chinese government is encouraging companies to buy a certain amount of farm products including pork and soybeans and will exempt these goods from additional tariffs”. A measure of retail sales rose at a better-than-expected rate this month, this was led by sales from internet retailers, building materials and auto dealers.  The Commerce Department reported today that retail sales rose .04% in August doubling the expected .02% gain.

Resistance is setting in at 302100 and 303300, with support being 300000 and 299000.

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.