RJO FuturesCast

December gold futures have had quite the slide over the past few days, and it’s all attributed to a stock market rally on a possible phase 1 China trade deal, and a technical breakdown against key support levels. Investors are now taking a more risk on attitude as the market sentiment is that nothing can derail this rally. The possibility of at least the first step in the trade talks looks good, but nothing has been said from Trump confirming this. The precious metals market is reacting to any piece of news on trade talk progress on a daily basis, and I think overreacting in the most recent selloff. December gold is likely to head lower at least in the short term, down to $1425. This is assuming that nothing comes out to negate the progress the U.S. and China have made in recent days. It seems that a simple tweet is enough to throw a wrench in any trading strategy, but we must look at what we know today. I think traders should be looking at trading gold from a technical perspective and keeping in mind the noise that could derail the strategy and be ready to react accordingly. Traders looking at trading gold but don’t want to fully step in should look at the smaller gold futures contracts from 33 and 50 oz contracts. Building an outright long position in gold right now isn’t suggested, but as soon as the trade talks are fully confirmed “in jeopardy” and at risk of going south trade the trend.

December silver is trying to find support as it pressured by improved trade talk. The gold/silver ratio is around 86.60 relative to what it was in July of this year, hitting approximately 93.39 on weekly bases and the most recent low 79.30. Given the sizable long position on silver, any bearish news will force weak longs to exit the market. One aspect to pay attention to in commodities is that they have been heading higher since they made recent lows in Oct 2019. What I’m referring to is the (Thomson Reuters/CoreCommodity CRB index: google it). My thought is that down the road, as broad commodity index rise, inflation could creep up to support the metals, silver will benefit from it. Silver traders should pay close attention to inflation readings.    

From a technical perspective, a closer look shows that momentum is turning down. A close above 18.00 is needed for new fresh longs to come into this market. The COT will be released this afternoon from the measured on Tuesday. We shall see the long reductions.

Oil prices have come off their recent high and have made what appears to be a temporary top after perceived U.S.-China trade optimism. China has been insistent on substantiated tariff relief as part of the ‘Phase-1’ deal, which would set to ease broad global demand concerns. The trade has largely discounted that Chinese crude oil imports posted an all-time high of 10.72 million barrels per day with year over year imports up more than 11%.  OPEC Secretary General noted that that the oil outlook for 2020 is favorable, with no immediate need for further cuts and renewed focus on compliance. This comes amidst yet another jump in EIA crude oil stocks of 7.929 million barrels which are 14.995 million barrels above year ago levels. Despite oils recent reflation in price, volatility continues to break down with the OVX near the 31 handle. The market remains bullish trend but has pulled back from the top the range with today’s range seen between 54.16 – 57.96.

Dec ’19 coffee futures continue to rally as this market news shifts to production. According to some reports there could be a global deficit of about half a million bags for the 2019/20 season and managed money is still net short 45,692 contracts (as of the Friday Nov 1^st COT summary) leaving plenty of fuel for short covering to support a more extended rally. Further fundamental support comes from reports indicating a 1.5% rise in coffee consumption over the previous year. Coffee is showing great strength on the charts with a steep and consistent rise since mid-October. It’s possible to see a pull-back in the near-future, but I would consider this a bullish opportunity as coffee futures have plenty of reason to see higher prices.

Coffee Dec '19 Daily Chart

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.

The cattle market has been in a strong upward trend since the beginning of September and we could continue to see some more buying action in the short-term. This is due to the strong increase in the open interest, suggesting that fund traders are still active buyers in the market. The back-month contracts could start seeing some pressure since there is a huge premium on futures to the cash market, making producers consider increasing weights and higher production. We will see what the next Cattle on Feed report holds for us, but some are expecting a large number of placements for the month of October and even into November, boosting 2^nd quarter production.

Cash traded cattle in Nebraska traded at $113-$115 while Texas and Kansas had $112 traded. December cattle will try to make a push through the $120 price level, which is a level of resistance, in the short term and if it does breakthrough, I believe $124 is reachable by the end of the month. If there is a failure to trade through the current resistance level then a 38% retracement would cause the market to fall back to $112, I believe if there is a pull back then it falls back to the $115 support level and trades sideways from there. Technically, the market is significantly overbought with an RSI reading of 81. The USDA estimated cattle slaughter came in at 119,000 head yesterday. This brings the total for the week so far to 234,000 head, up from 231,000 last week, but down from 243,000 a year ago. USDA boxed beef cutout values were up $1.81 at mid-session yesterday and closed $1.24 higher at $236.05. This was up from $230.55 the prior week and is the highest since August 27th.

U.S. dollar futures punched higher Friday morning, breaking psychological resistance at the 98 level. This week’s sharp move to the upside is no surprise considering the prospect for a phase one trade deal and new all-time highs in U.S. stock indices. To add fuel to the fire, U.S. interest rates are climbing higher, attracting foreign investment to the U.S. economy and helping to support the greenback. Expect resistance at 98.25, then again at 98.46. A close over that level could prompt buying back over the 99 level. Foreign currencies are selling off on dollar strength, specifically the euro and the pound. The chart set-up on the Japanese yen looks ugly, but I do believe there is value at these levels. This is a safe-haven currency, so it is selling off as sentiment improves. Commodity currencies, like the Canadian and Australian dollar, are relatively stronger. The Royal Bank of Australia did not cut rates at their meeting this week, which is helping to support the Aussie dollar. Technically speaking, the Dec AUD is forming a bull flag on the daily chart as the market takes a breath and is attempting to reverse the downtrend. I have a bullish bias on the Australian dollar so long as it remains above 68.25.

Markets are slightly lower this morning after another record breaking day in the U.S. stock market on Thursday. Markets rallied after a Chinese official said that the U.S. and China have discussed rolling back tariffs, reporters were told these could happen even before the first trade deal is signed. In October the two sides agreed to a preliminary deal. The Dow ended up 0.7%, 182 pts and the S&P 500 up.03%, both were new all-time closing highs. Priscilla Thiagamoorthy, an analyst at BMO stated “"For almost two years now, the US/China trade tussle has posed the biggest headwind to global growth. But with promising signs of progress on the trade front, a shift in global central banks to easing (including three consecutive rate cuts by the Fed this year), and mostly better-than-expected corporate profits, US stocks were pushed to all-time highs,"

Support is checking in today at 307300 and 305900 with resistance showing 309900 and 311200.

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.