RJO FuturesCast

November 20, 2020 | Volume 14, Issue 47

The Markets

Metals - Gold Futures Under Pressure×

While the $1,850 support level in gold continues to hold, I am beginning to question whether that support level on the chart is enough. Gold futures are going to need some fundamental support. The vaccine announcement was the “stake in the heart” for gold. It doesn’t seem likely that additional stimulus is on its way. Afterall, we haven’t yet used all the stimulus funds from previous packages. The US Dollar still looks vulnerable to me and perhaps a little supportive to gold for the time being. Gold is going to have to see new contract lows in the dollar to recover from the vaccine sell off.

I’m still long-term bullish gold and believe that new contract highs are like first quarter 2021. However, it looks like it’s also very likely that we need to see a test of the $1,800 level before moving back above $1,900. There’s just more negative fundamentals in play right now and $1,850 is going to be taken out if it’s tested too many times. At the time of this writing gold is trading $1,875. Gold is finding some support in the raising number of COVID cases and additional lockdowns. Also, as mentioned, the Dollar doesn’t seem able to bounce. Maybe $1850 is the low, but I doubt it. Look for $1,820 to $1,805.

Gold Feb '21 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or fcholly@rjofutures.com.
Energy - Oil Set for Third Consecutive Weekly Gain×

Oil prices have remained firm early Friday as the market is set for a third consecutive weekly gain as vaccine news continue to buoy prices despite the ongoing demand concerns. This has been coupled with OPEC+ expecting to delay production increases by three months lowering their cuts from 7.7 million bpd by about 2 million bpd with a meeting scheduled for Nov. 30th and Dec. 1st.  Weekly inventories reported a slight build, however, the US operating rate increased by nearly 2%, suggesting an uptick in domestic demand for physical crude supplies. This in part may have offset by reports of residual demand from China as weekly stockpiles have fallen 5 out of the last 7 weeks. Regarding supply, Libya continues to increase production now raising to pre-blockade levels of 1.25 million bpd. The market continues to remain bullish trend with today’s range seen between 39.71 – 42.65.

Crude Oil Jan '21 Daily Chart
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Softs - Coffee Gets Bullish News×

A couple key factors have played a major role in the recent breakout of March Coffee futures. At the center of the radar is the flurry of two hurricanes, Eta earlier this month, did substantial damage to key growing areas of Central America and Mexico, producing flash flooding and mudslides. Shortly after, hurricane Iota was on the way, but has since been downgraded from hurricane to tropical storm. Regardless, the extremely wet weather will result in delays in harvesting and increase crop damage on-the-whole, prompting solid support to March coffee prices.

In addition to the bullish fundamentals of weather, Pfizer and Moderna’s recent announcement of 94-95% effective vaccines for Covid 19 has sparked a bit more confidence that life as we “knew it” will return in time. Although several factors will continue to play a role in how effective the vaccine and distribution of the vaccine will be, on-the-whole, the news is positive for the future of coffee shops and restaurants.

From a technical perspective, the aggressive bullish crossover of the price action through the 200-day MA has been followed by even more volatile buying. Both RSI and Momentum levels have increased with no bearish diversion from the price action.  There are several strategies that traders can apply in this situation.  

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Agricultural - Grain Futures Update w/Stephen Davis - 11/20/2020×
Stephen Davis discusses the grain futures market amid continued uncertainty surrounding Covid-19 lockdowns.
Currency - Resistance in USD Could Thicken×

Seeing the USD index fail to rally on the US treasury claw back of stimulus funds from Federal Reserve highlights a lack of flight to quality sensitivity in the USD. However, it is possible that a portion of the trade thinks the treasury has plans to utilize the funds quicker than the treasury by some form of executive order. On the other hand, the other side of the political aisle sees the pullback as a move designed to rob the US economy of economic assistance for the next administration. Just as equity markets continue to look through the US infection surge, it seems that the currency markets have same capacity and that could thicken the resistance that comes in today at 9245. The next level of resistance would be 9280 with support coming in at 9200 and 9185.

USD Dec '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or tcholly@rjofutures.com.
Interest Rates - Interest Rates Responding Well to Covid-19 Induced Shutdowns×

Looking at the December 10-year note, we had a high overnight at 138-16.5 and a low of 138-06 and we’re currently trading at 138-07. The note has been acting well with ongoing shutdowns across the US due to the ongoing and relenting spread of the virus. The good news is for everyone is that a vaccine is coming shortly but with that news, brings up the question on a few important items.  How fast can it be distributed? How do we store it to keep it fresh?  I have heard it can only be stored in -50 degrees and many hospitals around the country lack the ability to store it. So, it will be interesting how quickly they adapt to what they need to keep the vaccine safe. Another important thing that many are not talking about is how many people are going to take it once distributed. I think a fear some have is that it was rushed and are skeptical to take it because of the unknown. IE, side effects.

Technically the 10-year note has good support at 137-28 and more down at 137-21.  On the upside I see resistance at 138-1655 todays high and more at 138-24-25 level.

10-Year Note Dec '20 Daily Chart
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 - Stocks Remain Afloat Amid Lockdown Uncertainty×

 Throughout the United States and Europe, lockdowns are turning from a conversation to a reality.  We know the toll that such actions took on the market last time, but we’re considerably more well informed about the virus than we were several months ago.  Cases are surging again, and while some will suggest that is largely a function of increases testing, it is hard to view that as a positive.  Lockdowns are at the very least, unlikely to help the recovery we’ve seen from the March lows, but we’re also nearing the finish line on multiple vaccines.  When you factor in that we’re unlikely to see any form of additional stimulus for the next couple months, one can only be impressed by how well the market has maintained these trading levels.   

The Dow, S&P, and Nasdaq continue to trade near the top end of their recent ranges dating back to early September.  The Russell lagged the others on the way up (and was often the first to show signs of weakness on downturns), but it arguably has the strongest technicals of the bunch.  All four indices are slightly lower this morning, but that’s not all that surprising given some of the risk factors on the fundamental front.  We’re also headed into a holiday week, so some investors may just want to take their profits off the table and enjoy their time off.  We’ve ramped up into the close three of the four days this week, so clearly the dip buyers are still out there.  Considering how many people seem to be interested in buying lower, and the market’s tendency to please the least amount of investors, I believe we’re likely to remain relatively elevated in the near future. 

E-mini S&P 500 Dec '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or bdixon@rjofutures.com.
Economy - Futures Market Outlook w/John Caruso - 11/20/2020×

A considerably much more quiet morning than yesterday.  Looking at the board right now, more signs of inflation are jumping out at me….

Copper +2.06% (Immediate OB) to 328
Platinum prices +1.48%, to 965
Oil +0.52%, to 42.00
Gasoline +1.14% to 1.1783
Soybeans +1.34% to 1193
Corn +1.01% to 427
Bitcoin +1.30% to 18330

All of the above are signal OB this morning, but this is Wall Street positioning for Growth/Inflation Accelerating out into next year.  The question is now, when do I begin positioning for a steeper yield curve aka lower bond prices?  I’m slowly making that turn, and plan on moving to full position when the 10yr yields hit 80bps – But there’s always a chance I go earlier too!  Maybe today.   We’re close this morning at 83bps on the 10yr yield.

We have a nice bounce in Nat Gas to cover on this morning…back soon. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or jcaruso@rjofutures.com.

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