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.

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.

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.   

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.