RJO FuturesCast

October 25, 2019 | Volume 13, Issue 43

The Markets

Metals - The Shiny One Has Lift Off

In the early morning trade, December gold has finally broken out above major resistance and you are witnessing momentum buying take place with the shiny one currently trading at $1,519. New data has been coming out weak, which has heightened the possibility of another fed rate cut next week. Furthermore, the announcement of another British election next week has obviously added fuel to the broad base metals rally this morning. Traders and investors alike are speculating if a U.S./China resolution trade deal is reached, then China will come in and buy gold which will give more confidence to the bull camp.

If you take a clear look at the daily December gold chart, you’ll see that it broke above the resistance level that it’s been trading in over the last two months. If we keep it simple, the next two levels that the shiny one should try to retest is the September 24th high and then the contact high of $1,566 back on September 4th. I highlighted these levels below on my RJO Futures Pro daily December gold chart.

Metals - Silver Eyes $20.00 After Spike in Volatility

Since July 2019, Silver has continued to outperform gold. The gold/silver ratio is around 84.50, relative to what it was in July of this year hitting approximately 93.39 on weekly bases. I still expect to see silver continue to appreciate relative to gold. It is impressive how silver held its ground considering dollar strength-today! Fed meeting in a few weeks. Would they cut-rate?  Maybe .25 base point? Who knows. Well, any cut would favor silver. There is a talk of progress in trade negotiating with Beijing.  

From a technical perspective, a closer look shows that momentum is turning up. The bulls continue to enjoy a technical advantage. There is formidable support around $17.00 that needs to hold per close bases; otherwise, the bear will resume. Also, the commitment of traders with options report measured last week shows the non-commercial and non-reportable position hold sizable longer over 118K contracts.  Given where we are now trading around 17.80 in the December futures, more longs came to the market. It would take a real fundamental change for sides to switch.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or etesfaye@rjofutures.com.
Energy - Oil Prices Continue Climb Higher

Oil prices have continued to rally and have broken out of their multi-week consolidation despite continual soft economic data from Europe and Asia, which has only served to heighten demand concerns. This comes amidst conflicting stockpile reports from the EIA and API this week, as EIA reported a 1.7 million barrel decline in U.S. crude oil stocks while API reported a larger than expected build of 4.45 million barrels. Earlier in the week, there were reports that OPEC would discuss expanding productions cuts at their December meeting as well as enhance compliance standards. However, that was debunked by Russian Oil Minister Novak who stated that no formal proposal had been put forward. Further, China’s import quota was expected to increase by the end of the year, which provided underlying support. Despite record production levels in the U.S., net exports showed nearly the highest reading on record at 3.685 million barrels a day and with a drastic drop in imports (lowest since May 95), the market should continue to remain fairly supported with outlook orienting more towards OPEC and global demand concerns. This is not to discount the ongoing geopolitical risk factors, which remain at the forefront. The market is now neutral trend trend with today’s range seen between 52.25 – 56.17.

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 - Is Sugar Ready for a Reversal?

Mar ’20 sugar futures start the day down again but may find its footing soon. Demand concerns have weighed down heavily on prices and indication that the 2020/21 crop will rebound with high yields have granted managed money funds an opportunity to press prices down further. Sugar has been weak from a technical perspective, even with recent strength in the Brazilian real, sugar has seen very little support. There could be a change in demand tone however, with China making a large increase in imports. From the supply side there is a lot of support for the near to intermediate term as we are going into a period where supplies could be tight with what’s expected to be a massive production deficit for the 2019/20 crop; which could be a bullish opportunity for spread traders, with near term supplies threatening to be tight and the next crop possibly abundant. Looking at the charts traders should notice that each time prices have broken down below 1225, it has only been temporary and followed by a sharp rally. With this market so heavily oversold I think that as news shifts to tightening near term supplies we may see prices spiking higher soon.

Agricultural - Bullish Canola Count Intact Above Minimum 851.5

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.

Agricultural - Grain Futures Update w/Stephen Davis - 10/25/2019
RJO Futures Senior Market Strategist, Stephen Davis discusses this weeks movements in the grain markets. With winter staring us down the barrel, he also discusses where he expects the grain markets to go in the near future.
Agricultural - Cattle Market Looking Sideways

The December cattle market remains overbought technically, but there is no good fundamental reason for sellers to start becoming a more active participant in the market. U.S. beef production is expected to be 120 million pounds lower in the 4th quarter than it was in the 3rd. Last year, production increased by 43 million pounds over the same period and it would also be the first time in 5 years that production increased in the 4th quarter. The USDA boxed beef cutout was up 75 cents at mid-session yesterday and closed 80 cents higher at $220.93. This was up from $218.02 the previous week and was the highest the cutout had been since September 10th. The higher beef trend could support a positive tilt to the cash cattle trade this week. The USDA estimated cattle slaughter came in at 119,000 a head yesterday. This brings the total for the week so far to 237,000 head, up from 235,000 last week, but down from 238,000 a year ago. The cattle on feed report is released on Friday and is expected to only show a modest increase in both the placements and marketings during September and fewer cattle on feed than the previous year. I expect the market to trade sideways for the rest of the week and into next week. If there is a breakout over the $115 level, then I suspect a further run up to the $118 level. If there is a rejection at the $115 level, then expect a retracement down the $112 level.

Currency - U.S. Dollar Establishes Bear Flag Amid Correction

Currency futures were fighting for direction this week as back-and-fill action gripped the complex. The U.S. dollar marked a weekly low at 96.89 but was able to close every day above the pivotal 97 level. The recent correction in the dollar is attributed to the commencement of liquidity injection by the U.S. Fed. A pullback of this magnitude is expected after mild monetary easing, but a close under the 97 level would cause investors to take inventory and establish bearish momentum on the dollar chart. The FOMC is meeting again next week and is expected to cut the federal funds rate another 25 bps. According to the CME, the probability of a quarter point cut is over 90%. As the dollar broke down, foreign currencies have gained upside traction. The euro and the pound have had sizeable rallies, breaking through think channel resistance levels that have previously stopped their rallies all year long. After another delay in the Brexit process earlier this week, both currencies have taken a pause from their rallies. The euro appears to be forming a bull flag on the daily chart, which coincides with the bear flag forming in the USD. Should the greenback fight back to 98, and hold those levels, its correction should be short-lived, and the currency markets would return to “business as usual”. However, if the bear flag materializes, and we begin to see closes under the 97 handle, bullish strength would compound in foreign currencies and the euro could extend rallies back to 1.13.

All eyes will be on the Fed next Wednesday. Should they bring out the big guns in order to promote stock market strength, the dollar will fall through the floor. However, if they continue their trend of “less-than-dovish” rhetoric, the correction in the dollar could be over for the time being. Look for resistance back at the 98 level and be careful shorting the other currency markets. Aggressive traders can find success in these choppy waters, but passive investors must be weary of trend reversals that accompany easing monetary policy.

Equity - Stocks Go As China Goes

Global markets were generally mixed coming into Fridays open. Amazon’s 6% premarket decline from their disappointing earnings was putting a damper on the open. On the positive side, word out of China is that they are willing to buy more agricultural products from the U.S. if they cancel existing and forthcoming tariffs on Chinese goods. China’s Foreign Ministry spokesperson, Hua Chunying, hit out at Vice President Mike Pence for his critical comments on Beijing’s human rights record. Further suggesting that Pence should focus on America’s domestic troubles rather than taking aim at them.  According to Bloomberg, “U.S. consumer sentiment paired gains from earlier in October while remaining elevated, suggesting America’s spending will continue to support the economy despite weakness in manufacturing.”

Today’s support is 299600 and 298900 with resistance checking in at 3012 and 302200.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-861-1656 or jyasak@rjofutures.com.
Economy - S-T Mo Failure Insufficient to End RBOB Correction, But Beware

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.

Coming Up Next Week...

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