RJO FuturesCast

Gold futures have fallen early this morning as we saw treasury yields rise and it’s threatening to halt a 3 consecutive session rise. However, gold is still on pace to have its best week in nearly 5-months. December gold is currently trading at $1772.30 at the time of this writing, about $28 off the recent highwater mark of about $1800. All-in-all December gold is still on pace to make a 1% gain on the week, so gold bulls can’t be too upset. Analysts attest that the recent run in gold has been partially fueled by the diminished value of the dollar as the market is flooded with money coupled with the Fed holding interest rates artificially low. This could change soon though as the Fed has signaled they will taper their bond buying in the coming months. Keep an eye on gold today and the coming weeks and check back for more updates.

Oil prices continued to inflate higher as of Friday morning and are set to for a weekly gain of more than 2% on increasing signs of tightening supply. This comes as OPEC+ dismissed the notion of additional supply coming online coupled with the IEA noting that increasingly higher gas prices could boost oil demand with their expectation that oil demand is set to jump half million barrels per day (bpd), which would result in a supply crunch of around 700k bpd through the end of the year. The IEA noted in its monthly report that oil demand is forecasted to increase by 210,00 bpd in 2022 and oil demand to reach 99.6 million bpd. This comes as weekly US crude stocks rose by 6.088mb, much greater than the expected 702k barrels. Contributing to the build was a slowdown in refinery utilization (-2.9%) and refinery input (-684bpd). Oil volatility (OVX) continues to breakdown to cycle lows with the market remaining bullish trend with today’s range seen between 76.29 – 83.24.

Coffee prices have jumped more than 10% over the span of one week, as supply-side developments both near and longer term have fueled this rally. Although the coffee market is beginning to reach overbought levels, it looks to have much more upside left to go before this rally runs out of steam. Brazil could see crops negatively impacted by extensive drought conditions and frosts during July. Reports that farmers may default on over one million bags in deliveries have also ramped up near term supply anxiety. These supply issues are exacerbated by the global shipping container shortage that continues to fuel coffee’s longer-term uptrend. Rising overbought levels warrant some caution for bullish traders. A positive signal for trend short-term was given on a close over the 9-bar moving average. There could be more upside follow through. Resistance comes in at 21940 and 22355. Support comes in at 20685 and 19845.

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.

Last week I advised traders on the following “This week is showing us another inside week setup.  Traders should watch for a break above $5.49 or a break below $5.23, basically last week’s range.” Sure enough, the market broke through $5.23 and made a weekly low of $5.06 ¾ before reversing. At the time of this writing, December corn is trading around $5.26 ¼ with a weekly high of $5.34. It appears the market still has strong support around the $5.00 area. If we see corn close in the upper 1/3 of the daily trading range we may see some follow through to the upside early next week. The USDA Supply Demand and Crop Production Reports that were released on Tuesday were inside the range of estimates but leaned slightly bearish. I still remain cautiously bullish even with the same pullback we saw this week. In my opinion to really get the bulls excited we would need to see December corn trade up above $5.49.

The “big picture” numbers remain the same and probably will for some time. I firmly believe a break below $4.96 could give the bears control of the market and a break above $6.39 ½ on the upside may have enough bulls behind it to propel corn to all-time highs. There are several minor areas of support and resistance inside this range that can help with short term market direction if violated. Call me directly at 1-800-367-7290 for more in-depth discussion on these numbers and to discuss trading strategies specific to your situation.

I would suggest using an option strategy to manage your futures position risk or an outright option strategy. Implied option volatility has come down quite a bit from its most recent highs mainly due to the consolidation and tighter trading ranges. I have 25 years of grain market experience, feel free to call or email with any questions you may have.  Be sure to check out my archived weekly grain market insight articles posted on our website.

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Looking at the December 10-year note, overnight we had a high of 131-160 and a low of 131-06 and currently trading 131-12. This morning we had PPI, which came out a tad weaker than expected which has given the note a mild boost in early trading. The trend is down in treasuries with a “sell the rally” mentality firmly in place as inflation continues to creep higher with crude reaching 81.68 overnight and natural gas currently up 21-cents as we speak. This week we have seen many fed speakers come on tape and suggest that the Fed should start to taper as early as November which should keep a lid on prices for the remainder of the week. The continued talking of tapering is the Fed slowing down the purchases of bonds which has been going on since the pandemic in early 2020. The Feds continued the buying of bonds which is keeping rates artificially low, creating a bubble that is ready to burst. Being able to pick the exact time is impossible but the fed has created a monster and I believe has cornered itself while inflation related commodities have skyrocketed. It’s not a good position as investors have seen the yield on treasuries jump om the last two weeks, so I would encourage traders to be on guard as more fed officials express their desire to begin to taper.

The markets are higher for the third day in a row as we get ready to call it a week.  Inflation is back in the news, and it appears that it is trending more so than it is transitory.  Retail sales clocked in at the higher end of the expectations (0.7%) M/M despite labor shortages, material shortages, and supply chain disruptions driving prices higher (.04% M/M and 5.4% Y/Y).  While there is hope for the labor side of things given the expiration of benefits for many, it seems as though it will be a while before things are anywhere near back to normal.  

Earnings season is back in full swing.  Thus far, results have been positive with most of those reporting beating analysts’ estimates.  Despite some of the obvious headwinds that persisted through the last quarter, the consumer remained quite active.  I would expect strong earnings to continue to be released as a result.  However, consumer sentiment came in this morning at a mere 71.4.  That is the worst reading since 2011 as consumers are starting to show signs of concern over inflation.

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.