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.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or pmooses@rjofutures.com.
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 - 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.

Coming Up Next Week...

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