RJO FuturesCast

After yesterday’s big washout in gold, due to a complete flip in the Retail Sales report from what the market expected and what was actually reported, the path of least resistance now is down. Yesterday’s action was a trend changer. With gold now trading at $1,750 we can now target $1,720 to $1,700 as the next level or range to be tested. Gold traders want a “dovish” Fed. Strong inflation data will force the Fed’s hand to taper sooner rather than later. I wouldn’t be surprised to see gold take a breather after yesterday’s sharp selloff and trade sideways until next week’s FOMC Meeting.

Today there’s red all over the board. Dollar strength coming from prospects of higher rates puts pressure on all commodities. Equities down for the same reason. Treasuries down as yields tic higher. You know how it works. You have to pay attention to outside markets regardless of what market you trade.

Oil prices are softer by 1% on Friday as more US offshore production continues to come back online despite indications by US Gulf market regulators that 28% of US Gulf production remains unavailable. Crude stocks declined -6.42 million barrels for the sixth consecutive draw, according to the EIA. Stocks are now -786 mb below last year’s levels and -27.78 mb below the five-year average. To note, Saudi Arabian oil exports reached a 6-month high as OPEC+ is continues to ramp up output for the rest of the year. This comes as OPEC and the IEA reported that oil demand could reach 100 million barrels per day as soon as the second quarter of next year.   Oil volatility (OVX) has continued to fall to cycle lows with the market remaining bullish trend with today’s range seen between 68.32 – 73.33.

In last week’s article which was published on Thursday the day before the USDA Report I advised the following: 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. After the report came out on Friday, we saw the bulls “shake the tree” and knock the weak longs out of the market and attract some fresh short sellers only to then climb from Friday’s low of $4.97 ½ to yesterday’s high of $5.37 ½, a nice 40 cent move higher over 5 trading sessions! The report basically ended up inside the range of guestimates and with prices already depressed heading into the report coupled with strong support around the May monthly low and 200 moving average one could see why the market performed the way it. Currently, prices are trading around $5.25 which appears to be some profit taking ahead of the weekend, if the market consolidates around this area I would expect to see the market head to around the $5.42ish range before running into resistance again. Watch for short term support around $5.18 area.

Slight revision on major support areas:  Watch December corn at $4.96 on the downside vs $4.99 and $6.39 ½ on the upside – basically a breakout on the May monthly chart, those numbers are based off December corn month of May high and Friday’s low. 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.

Looking at the December 10-year note we have a high of 133-145 and a low of 132-305 and currently trading at 132-315. What we have been seeing in the last few weeks is data coming out on the weak side which has given the note a bid. Today that changed and possibly the trend as well. This morning the street was watching retail sales and was expecting a reading of down 0.8% but instead we saw a somewhat robust reading of up 0.7% which definitely took traders by surprise and we are seeing the yield on the 10-year at 1.35%, which making traders think that chairman Powell might actually taper earlier rather than later. In today’s down move we are currently under the 50-day moving average which currently lies at 133-13 and often is a good predictor of a trend change. Looking at this market from a technical view, I would say selling rallies in the note with protection above the 50-day moving average might be a good trade since, in my opinion, we have entered a short-term downtrend. 

Indices appeared poised to finish of the week in positive territory yesterday afternoon. That is all in jeopardy this morning as selling has dominated the early going. The four major indices are off anywhere from 0.4-0.8%.  September futures are coming off the board this morning, and an estimated $3.4 Trillion in options are set to mature (With a September record of approximately $740 billion in individual names). Consensus is now bearish, and people are paying large premiums to hedge as indicated by the large increases in implied volatility premiums. This can be viewed as an indication that people are willing to pay up for protection, because they fell the next big selloff is coming. The market has a funny way of pleasing the least amount of people, but perhaps they’ll be right. Since the Covid bottom last March, any and all multi-day selloffs have been buying opportunities.  Surely that will stop working at some point, but I just don’t think it is broken yet. Perhaps that changes next week with the Fed. If so, a lot of people will finally be happy to have had their downside hedges in place.