RJO FuturesCast

November 15, 2019 | Volume 13, Issue 46

The Markets

Metals - The Bears Are Back in Town

In the early morning trade, gold has slightly fallen from yesterday’s highs as it tries to rebound from this week’s low and last week’s BIG sell off. So, I guess today in the day-to-day back and forth in U.S./China trade war news, is that now comments have shifted once again to the positive side of a Phase 1 U.S./China trade deal, which has caused another setback for the metals-we’ll see how long this news last. However, our chief economic advisor stated that the negotiations were down to “short strokes” and high-level negotiators on each side were in these meetings, which gives even more credibility to his statement. Furthermore, gold has completely broken down technically and now leaving the gold bears in clear demand of the market with even further bearish news overnight that gold ETFs holdings declined for the 7th straight session.

If we look at the daily December gold chart, you’ll clearly see how early last week it broke above technical resistance and could not hold onto its momentum after positive U.S./China trade talks, which prevented the shiny one to break a major technical long-time support level of roughly $1,475 an ounce. The bears have a clear advantage of this market now and I believe any kind of rally will be a selling opportunity for the bears. Furthermore, with last week’s sell-off the gold market is now opened to trading all the way down to its 200-day moving average of $1,407 an ounce. I highlighted these technical levels below on my RJO Futures Pro daily December gold chart.

Energy - Oil Oscillates Between Gains and Losses

Crude was pairing between gains and losses but had reversed early to move lower in the afternoon session Thursday, following a surprise build in oil stocks with U.S. production at a new record high despite a decline in the rig count. This comes amidst OPEC’s prediction for a ‘sharp’ slowdown in American shale output. Ahead of its meeting early next month in Vienna, OPEC set expectations for lower demand despite a lessening of supply, which would encourage a continuation of cuts. Chinese oil demand continues to be under scrutiny following mixed data with a slowdown in industrial output and a jump of 9.2% in oil refinery throughput. The market remains bullish trend and with inflation set to accelerate through the end of Q4, look to buy dips (as well as other energy products) closer to the low end of the ranges with today’s range seen between 54.85 – 58.02.

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 - Technical Levels Create Break-out in Cocoa Futures

The move higher this week is all technical. Demand is still a concern. Supply is uncertain. Global market uncertainty is still relevant. After consolidation in the March contract for almost 2-months the contract was due for a break-out. Once 2560 was broken, 2600 was the next level and price needed for the market to close above to see the cocoa market follow-through on its initial break-out.

To end the week, first notice day on the December contract is November 15th, longs will exit or roll their positions. The Commitment of Traders data after the close Friday will also help us see how traders are positioning themselves as we move to the March contract and focus on the new year.

Traders will continue to monitor supply/demand and weather in key growing regions. If the currencies come back into play, look for activity in the Euro or Pound to add to current support levels.

Softs - Coffee Showing Strength

With U.S. stocks still trading at historic highs, a risk-on mentality has taken hold of the already bullish December coffee futures market. We continue to see that fundamentals such as a strong Brazilian currency over the past month, coupled with an ongoing poor weather outlook from key growing areas of Brazil have sparked some solid buying support to December coffee prices. Our friends at The Hightower Group have commented that “Vietnam’s Department of Customers said that their nation’s October coffee exports came in at 87,497 tonnes (1.485 million bags) which was down 5.3% from September and below government estimate of 100,000 tonnes (1.67 million bags).”

On the technical side, an impressive rally with a subsequent expected pullback shows all the signs of higher prices for December coffee in the long term.  A break above the critical 103 resistance level was impressive, and as a result, sparked aggressive buying over the last week. We are likely to continue in an uptrend after this pullback. It may be a great time for bulls to jump in again once the pullback reaches 103 support again.

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 - 11/15/2019

RJO Futures Senior Market Strategist discusses this week's movement in the grain market. Stephen also discusses his six "power points" regarding the direction of the grain markets.

Currency - U.S. Dollar Bulls Remain Resilient

U.S. dollar futures are 20 points lower Thursday afternoon, but the greenback is holding psychological support at the 98 level. America’s currency remains in an uptrend on the chart despite its recent correction, which adds fuel to the bull camp because it maintained support above the valid trendline and did not close beneath the 97-pivot point. The Fed’s announcement of liquidity injection is what set the correction path for the dollar, but that news is priced in at this point. Furthermore, Powell’s testimony this week hinted at a pause in the rate cut cycle (higher rates means a stronger domestic currency). The CME puts the odds of a December rate cut at just 3.7%. From a relative perspective, our rates are still higher than those of other developed economies, which attracts foreign investors to American assets thus keeping the demand for dollars strong. I believe any dips in the dollar will be short-lived, and the trend projects a test the 100 level in early January. Foreign currencies, namely the European currencies, will move to the downside should the dollar’s uptrend remain intact. The Japanese yen has found strength this week but will likely struggle to hold trade above 92.50. One thing has proven true time after time; demand for the US Dollar is not going anywhere anytime soon.

Interest Rates - U.S. Treasuries Trending Down

Looking at the December 10-year futures contract, we are currently trading at 128.275, with a high of 128.295 and a low 128.105.  The trend has certainly been down with the contract hitting a new low last Thursday at 127.315.  Interestingly enough, the last four days we have seen higher lows, so the market has clearly temporarily seen a bottom in trade. One can assume that yields have gone up too far too fast in addition to some healthy short covering. For bulls, a close over 128.275 could lead to a push to the 129-04-06 level. For that to happen, bulls are looking for weaker than expected data, any negative back and forth with China on phase one of the trade deal, or a substantial drop in equity prices, could lead to a flight to quality type of trade.  This morning we had the CPI which came out a bit better than expected and the 10-year note is still higher on the day, which is interesting because normally better economic news is bearish for treasuries. Federal Reserve Chairman Powell is currently conducting a hearing on the economy before the Economic Committee of the United States Congress.  Traders are on edge looking to hear anything on economy and rates. The rest of the week on the economic front, we have PPI tomorrow, and on Friday we get retail sales which could be a big market mover so stay tuned.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or gperlin@rjofutures.com.
Equity - Stock Futures: Let the Bulls Run

U.S. equity futures continue to ride the bull train Friday morning, aided by better-than-expected retail sales (0.3 % m/m vs. 0.2% expected). While industrial production missed expectations, market bulls are shrugging off that news. The technical pattern resembles a steady ‘melt-up’ in stock futures, similar to the pattern we saw at the beginning of the year. While economic data is improving slightly, the recent numbers are nothing to write home about. Furthermore, the trade situation seems to be on the back-burner, and earnings growth has been less-than-stellar. This grind higher in stocks is attributed to positive US economic sentiment and technical strength. If we see a close above 3120 in the S&P, the sky is the limit. The bullish bias remains so long as the index trades north of 3074. Shorting stocks at all-time highs is always tempting, but it has proven to be detrimental over the last 10 years. This trend looks to continue unless a geopolitical event shakes the market.

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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