RJO FuturesCast

In the early morning trade, gold has pulled back slightly off its overnight highs because of a blowout jobs number of 128K after expectations of only 85K. Furthermore, African-American unemployment has hit another record low of 5.4% along with a three-month average of 176K jobs added to the U.S.-this is great news that we should ALL be celebrating! Remember, we hit these blowout numbers even though the GM strike of 303,000 people was going on and an ongoing trade war with China. The numbers don’t lie-America Rocks! December gold has pulled back slightly off today’s news but remains technically strong and with the announcement yesterday that the Democrats are proceeding with the impeachment of our President. Again, even though we had a great jobs number this morning, I think with the ongoing trade war with China and this impeachment that the bulls might keep gold above $1,500 an ounce.

If we look at December gold, you’ll clearly see that yesterday it broke out of the symmetrical triangle pattern and is trading above all its major moving averages, which should be a very bullish sign for the shiny one. Furthermore, it leaves gold open now to trade back to contracts highs of $1,566 an ounce made back in early September. I highlighted these levels below on my RJO Futures Pro daily December gold chart.

The silver market has been stuck in a sideways range for the month of October and we saw that continue this week with December silver starting this week with a move lower before concerns of global economic slowing helped the market recover from Wednesday’s 17.59 low. Reports from China that a long-term trade agreement with the U.S. is unlikely lends support to the silver market and counter acted the Fed’s rate-cut, but Friday’s nonfarm payrolls and unemployment numbers added pressure. Weakness in the U.S. dollar and calls for a coming global recession give the bulls hope but until we see continued economic data to support those views, silver looks to continue in this sideways range. A close over resistance at 18.225 is needed to continue the move higher to 18.80 while a break of 17.60 would most likely push the market down to support at 17.30 or 17.00.

Oil prices have fallen for the fourth consecutive session amid a 5.7-million barrel increase in EIA crude stocks as well as soft global economic data with Chinese manufacturing activity falling to an eight month low and Chicago PMIs falling into contraction territory and the lowest on record since December 2015. Adding to the bearish sentiment were renewed concerns over the ongoing U.S.-China trade war with Chinese officials reportedly skeptical of a longer-term deal. In addition, record U.S. production has weighed on prices. Despite the recent pullback, Dec crude remains about 4.00 above the October low with geopolitical risk an ongoing threat. The market is bullish trend with today’s range seen between 53.09 – 57.38.

Current weather conditions are supporting cocoa prices. Rain in key growing regions could cause supply issues. The ongoing concern with global demand is also causing prices to consolidate and trade in a range. 2495 has held as resistance.

Global risk sentiment has added to volatility in currencies, which has carried over to cocoa prices - the Pound and Euro are the two main contributors.

If dry weather returns in West Africa after this recent rain, new crop cocoa beans could have some disease and damage, this could propel futures’ prices over 3000. This will be critical as traders begin to roll from the December to March contract over the next few weeks.

The price action in December coffee has been quite supportive, with higher highs and lows consistently. Many fundamentals, such as a strong Brazilian currency and weaker U.S. dollar have lent some strong support to December coffee prices, as well as several other commodities.  At this point, many traders have eyes on weather issues that may be forming in key growing areas of Brazil, coupled with the expectation that the second largest producing country, Vietnam, will fall short of its projected exports. Our friends at The Hightower Group have reported that “Vietnam coffee exports are expected to come in at 1.365 million tonnes (22.75 million bags) which is 13.8% behind last year’s pace. ICE exchange coffee stocks rose by 180 bags on Tuesday but with 2 days to go remain nearly 38,000 below September’s month-end total.”

On the technical side, a battle awaits at the 103-resistance level in the near term, and after a noticeably impressive rally, a correction is likely at this point. Momentum levels are strong, but until we get a good feel for how bad the upcoming weather conditions in Brazil will be, we are likely to see December coffee prices remain in a sideways consolidation pattern.

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.

For three trading sessions in a row now, the corn market has closed up, near the daily highs. As focus shifts to November 8^th crop production update, the market may be supported today and into next week. Weekly exports were disappointing again, which was what caused early weakness yesterday. Export sales came in at 549,100 tonnes.  Pre-report estimates were 350,000 to 750,000 tonnes. As of October 24^th, cumulative sales were only 23% of the USDA forecast for 2019/2020, vs. a 5-year average of 36%. The market would need to see sales of 824,000 tonnes are needed each week to reach the USDA forecast. The recent snow and cold through the Midwest has slowed harvest, but a shift to drier weather the first 10 days of November should get things back on track.

December corn ended the month of October up 2 cents, with a 24.25 cent range. Resistance comes in at 392 and 395 with support coming in at 386 and 382.

U.S. dollar futures gapped lower off the open on Thursday due to deteriorating trade headlines and the potential for disappointing U.S. jobs data Friday morning. September nonfarm payrolls are expected to increase by 90,000 jobs, compared to 136,000 in August. Furthermore, the Federal Reserve cut the fed funds rate another 25 bps on Wednesday, strengthening downside pressure on the greenback. Although the FOMC decided to cut another quarter point, they hinted at a potential pause in the rate cut cycle. The odds of a December cut are at 28% Thursday morning. The ambiguous attitude of the Fed can be credited to the strength of the labor market and the resilience of the American consumer. Being that consumer spending makes up 70% of GDP, the U.S. economy is unlikely to enter recession so long as the labor market remains strong and consumers continue to spend. This is the reason all eyes will be on Friday’s jobs number. Any weakness is likely to break the dollar down further, while a surprise beat is expected to hold Dec futures at the pivotal 97 support level. A close under 97 will antagonize sellers.

Meanwhile, foreign currency futures are moving to the upside this week, with leadership from the Australian dollar. European currencies are performing well but have been held back by another Brexit delay. Should the dollar break under the 97-support zone, investors should be bullish on all foreign currencies. Should there be further deterioration in trade talks, or a continued breakdown in economic data, the safe-haven currencies are likely to show leadership (i.e. the yen and the Swiss franc). The resilience of the U.S. dollar has kept other currencies suppressed. As the dollar weakens, a plethora of opportunities will be created as currency markets reverse trend. If you have any questions about how to get started trading currency futures, don’t hesitate to contact me directly.

Today is a big day for both the treasury and stock markets as the Fed is widely expected to cut rates by ¼ point. The announcement comes at 1:00pm central with Powell’s press conference at 1:30pm. Noteworthy news already out today is the GDP number, which came out at 1.9% while the street was looking for 1.6%, so it was a beat. However, the GDP was still below 2% so the news wasn’t all that bad although it beat the lowball number at 1.6%. In addition to the GDP report, we also saw ADP which came out near expectations around 125k.  

About 30 minutes ago, the Chilean President Pinera announced that he was cancelling the APEC summit schedule in Santiago next month. This is important because that is where the U.S. and China had planned to sign “Phase 1” of the trade deal.  Going back to today’s major news, the market has already priced in the expected .25% cut today which should be no surprise, but what is of major importance is what Powell says in his press conference. Traders will key on any change in language and will pay extra attention whether he comes out as hawkish or dovish and the trade will dictate as such. On Friday we see monthly payrolls. The street is expecting 85k vs last month 136K gain.

U.S. equity futures are unanimously in the green Friday morning after the release of upbeat jobs data. Nonfarm payrolls were expected to increase by 90,000 in September, but the actual number came in at 128,000. The labor market remains strong, with average hourly earnings growing by 3% year-over-year, right in line with expectations. The wage growth component will be a key factor moving forward. When the economy moves into the late stages of the business cycle, we see wage growth accelerate. This is the result of a saturated labor market, and it tells investors the economy is operating at full employment. From there, nonfarm payrolls can be expected to slow down. We are not there yet. Chairman Powell acknowledged the strong labor market when he hinted at a pause in the rate cut cycle during Wednesday’s Fed announcement. Essentially, the strong labor market is helping to prop up the American consumer, which is helping to prop up the broader economy. And these labor numbers indicate that we have not yet reached a tipping point. Technically speaking, the e-mini S&P chart could not have a more bullish configuration. Each dip over the last 6 months has been proceeded by higher lows, and stocks are now breaking out of a one-year consolidation period. In short, the bull has not yet run out of steam, and a close over 3055 hints that another leg higher is in short order.

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.