RJO FuturesCast

December 3, 2021 | Volume 15, Issue 48

The Markets

Metals - Gold Trying to Find its Place×

Gold prices are holding firm so far during Friday’s trading session as we learn more and more news regarding the latest Covid-19 variant, omicron. We are seeing the market taking a sort of “wait and see approach” as we have a number of conflicting momentum drivers impacting gold. On one had, we had a relatively strong jobs report this morning which is generally a sign of strength in the economy which leads investors to invest in equities and currency more so than gold. On the other hand, we have the uncertainty surrounding the omicron variant which is leading investors to wonder if they should invest in the relatively steady and safe gold, or follow the jobs data. All-in-all gold is still searching for a level of support below $1,800 and has been trying to find it all week. As it stands now, gold is pacing for a 1.2% decline on the week, its 3rd consecutive week of loss. If you have any questions please feel free to reach out to us.

Gold Feb '22 Daily Chart
Energy - Oil Higher as OPEC+ Continue Output Hike×

Oil prices appear to have found their footing as they clawed back early losses yesterday as OPEC+ have agreed to continue with their scheduled output hike of 400,00 barrels per day in January following record cuts last year. However, OPEC+ noted that they can make ‘immediate adjustments’ if need be as the market assess the impact of the COVID variant on demand, specifically fuel demand. Crude stocks fell -909k barrels last week with stocks now -54.931mb below last year and -29.321mb below the five-year average, according to the EIA. Oil volatility (OVX) has continued to remain elevated despite coming off its most recent high of 78 to 55-60 with the market transitioning to bearish trend with today’s range (due to the volatility) seen between 60.95 – 81.57.

Crude Oil Jan '22 Daily Chart
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 - Cocoa Futures and the Unknown Affect the Omicron Variant Will Have on the Markets×

As we continue a volatile week of trading after the new global variant Omicron was announced, traders wonder how long these trading conditions will last. The moves in the equities the past week look very similar to days we saw in March of 2020 – 500 points lower, 500 points higher give-or-take and repeat. So traders are asking themselves, is this volatility here to stay or will we experience a Santa Claus rally, Friday’s job’s data may provide some direction, at least in the short-term. The cocoa market rallied Thursday, erasing recent loses – following the move in the equities for now.

Demand in cocoa will be a key fundamental to watch. If earnings and demand look positive, cocoa should continue to climb back towards 2600. If this new Omicron variant proves to be a new concern and new restrictions are implemented – fundamentals won’t have control of the market, but outside global factors will be in control.

Trader’s need to also keep an eye on weather patterns in West Africa as the dry season approaches. With the current expectations in the coming weeks, it looks like prices should find support.

For now, traders should take a wait and see approach in the coming days as more news is likely to break on the variant, but solid answers won’t be available till year end according to health officials and vaccine companies.

Cocoa Mar '22 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 pmooses@rjofutures.com.
Agricultural - Grains - Minor Upside Breakout×

Last week I advised traders “The market appears poised to continue higher, but not without some selling pressure from time to time.” That’s exactly how this week started out with a small sell off on Monday and Tuesday followed by a 3-day rally. At the time of this writing March corn is trading $5.83 with a high of $5.86 3/4. Today’s break above $5.83 ¼ is a minor break out to the upside after 2 days of market consolidation. Traders should watch for another push to break above the major trendline (see red line on chart below) if that happens, I believe it will, the market should push quickly to the $6.00 area. I remain bullish and look for the market to continue to trade inside the bull channel (see shaded area on chart below).

The “big picture” numbers remain the same and probably will for some time. I firmly believe a break below $4.96 could give the bears control of the market and a break above $6.39 ½ on the upside may have enough bulls behind it to propel corn to all-time highs. There are several minor areas of support and resistance inside this range that can help with short term market direction if violated. Call me directly at 1-800-367-7290 for more in-depth discussion on these numbers and to discuss trading strategies specific to your situation.

I would suggest using an option strategy to manage your futures position risk or an outright option strategy. Implied option volatility has come down quite a bit from its most recent highs mainly due to the consolidation and tighter trading ranges. I have 25 years of grain market experience, feel free to call or email with any questions you may have. Be sure to check out my archived weekly grain market insight articles posted on our website.

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Corn Mar '22 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or msabo@rjofutures.com.
Equity - S&P Weakens Further, Reinforces Broader Peak/Correction/Reversal Threat×

In yesterday morning's Technical Update we discussed varying and increasing levels or degrees of weakness that reinforce broader peak/correction/reversal-threat environments. The 240-min chart below shows yesterday afternoon's sharp relapse below Tue's 4557 low that clearly reaffirms the developing downtrend with the important by-product of this continued weakness being the market's definition of yesterday's 4651 high as the latest smaller-degree corrective high this market is now minimally require to recoup to arrest the clear and present downtrend and reject/define a more reliable low and support from which to recalibrate the correction-vs-reversal debate and challenge down from 22-Nov's increasingly important 4741 high.  In lieu of a recovery above at least 4651, at least the intermediate-term trend remains down ahead of further and possibly accelerated losses straight away.  And per such, our new mini and short-term bear risk parameters from which traders can objectively rebase and manage the risk of non-bullish decisions like long-covers and cautious bearish punts are 4651 and 4741.

From a long-term perspective, the magnitude of the secular bull market is clear in the weekly log chart below, where commensurately larger-degree weakness below 01-Oct's 4260 larger-degree corrective low and key long-term risk parameter remains required to break the secular bull and expose a major reversal lower.  Again, as recently discussed, we cannot conclude a major reversal from proof of only shorter-term weakness.  And thus far, the past couple weeks' relapse remains well within the bounds of relatively shorter-term, bull-market-corrective weakness.

This said however, all long-term momentum failures begin with smaller-degree bearish divergence in momentum exactly like that that we have experienced the past two weeks.  And what the market has in store for us between spot and 01-Oct's pivotal 4260 low is anyone's guess.  What is not a guess is what the market now has to do defer or mitigate a broader bearish count.  Specifically and objectively, this market needs to recover above yesterday's 4651 corrective high and mini bear risk parameter.  Until and unless such strength is shown, the market's immediate downside potential is indeterminable and potentially severe straight away.

Contributing to this downside threat and vulnerability are:

  • clearly waning upside momentum on a long-term weekly basis below
  • historically frothy levels in the Bullish Consensus (marketvane.net) measure of market sentiment/contrary unseen in nearly FOUR YEARS
  • an "outside WEEK" last week (higher high, lower low and lower close than the previous week's range and close), and
  • the prospect that Oct-Nov's portion of the bull was the completing 5th-wave to a massive 5-wave Elliott sequence from Mar'20's 2174 low as labeled.

Additionally and updated only yesterday by the American Association of Individual Investors (AAII), Americans' portfolio positions allocated to equities moved to 71.4%, its highest level since Jan'18 and an ensuing and volatile period that saw the market languish/chop for the entire year before an ultimate decline of 21%.  Alone, such an indicator is relatively useless as it can stay "high" indefinitely as long as the simple uptrend pattern of higher highs and higher lows sustains itself.  BUT COMBINED WITH a bearish divergence in momentum that defines a more reliable high, resistance and a bear risk parameter, such emotional frothiness has to be considered a source of fuel for downside vulnerability until nullified by a resumption of the major uptrend.

Again, the size or "scale" of the past couple weeks' decline is thus far too small to CONCLUDE a major reversal.  But the ancillary evidence listed above is clearly typical of peak/reversal environments that ultimately prove major in scope.  And as a result of yesterday's resumed weakness, if non-bullish action like long-covers or pared bullish exposure to more conservative levels hasn't been taken, longer-term traders and investors are relegating themselves to the only other objective bull risk parameter that remains below the market:  4260.

These issues considered, a neutral/sideline policy remains advised for shorter-term traders while long-term players and investors are advised to pare bullish exposure to more conservative levels with commensurately larger-degree weakness below 4260 the only remaining level below the market from which bull risk can still be objectively based.  In lieu of a sell-off-stemming bullish divergence in short-term momentum needed to reject/define a more reliable low and support, we see NO levels of any technical merit between spot and 4260, so the market's immediate downside potential is indeterminable and potentially severe.  A recovery above 4651 is, at this juncture, minimally required to arrest the slide and provide new, objective flexion points from which to readdress the correction-vs-reversal debate.  In lieu of such strength, further and possibly accelerated losses are anticipated.

Economy - Futures Market Outlook w/John Caruso - 12/03/2021×

Markets reversed hard yesterday…following morning strength the reversal hit roughly around 11am CST and then approximately 30 min later we had news of our first Omicron case in the USA. Not to mention, Powell doubling down on a faster pace of the taper yesterday. So, for the 3rd day out of 4 (since the selling began last Friday) everything that could go wrong with stocks, did. Uncertainty remains in high supply at the moment, and it’s natural that your first reaction is to retreat, when in fact I believe you should be leaning into this – at least this is what recent history has told us to do not to mention our indicators. So right now, I believe the market is in the “digestion” phase of the news – we haven’t been hit with a news cycle such as this since the September sell-off on Evergrande and Delta variant. Going to cash on that news cycle back in Sept and VIX > 28 proved to be a terrible decision, and with our Q4 GDP projections north of 7% we don’t see any cycle risk. Yes, Powell hit us over the head with a 2X4 – while we expected a hawkish pivot by the Fed, we didn’t expect it until at minimum the January meeting. 

While we’re in the midst of cycle phase transition, as inflation slows off of 30 year highs – the growth cycle remains strong.  IVOL premiums remain extremely bloated with the SP500 at +92%, NQ +70%, and RTY +69%

NFP Payroll Data is due out tomorrow

I’ll have our TRM table and numbers out shortly. We are at the low end of plenty of ranges/with trends still intact. 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.

Coming Up Next Week...

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