RJO FuturesCast

December 9, 2021 | Volume 15, Issue 49

The Markets

Metals - Gold is Flat

After a convincing breakout rally above $1835 and then sustaining levels above $1850 here we are again, bouncing along at $1775. Just like that gold gave back $100 in premium. What’s wrong with gold? Gold can’t rally on clear signs of inflation. Gold can’t rally as a safe haven trade. But gold is basing another bottom and should have a very easy time moving back towards $1,900, but what will be the catalyst? I don’t think that it’ll be the risk off trade. It won’t be a weaker dollar trade either, because the dollar will be supported by rising rates. Rate hikes are coming. Inflation is undeniable and this administration is all about spending more…

I still firmly believe that gold will eventually rally on inflation. I know that the Fed will not have an easy time rising rates and that’s why inflation will continue to get hotter. Once gold gets back above $2,000, and it will, that will become a new bottom for a very long time. Some of you may remember when people didn’t want to buy gold at $775 because it was too “expensive”!

Gold Feb '22 Daily Chart
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Metals - Silver Trending Sideways

The January silver contract has traded sideways so far this week with Monday putting in a low of 22.10. The silver market is looking to build some support here, at least temporarily, after the fall the second half of November from 25.475 to 22.05. Stocks are trying to hold the gains from earlier in the week and the market is awaiting US CPI numbers that come out on Friday. More importantly for the silver market is how the US dollar will react to that CPI number, a higher-than-expected number will be bullish the US dollar and most likely drive silver lower. Also, the Fed projection of tapering sooner than originally thought, could pressure stocks which would add pressure to the silver market as well. Another disappointing look for the silver market was its lack of a push higher with the last two days of a risk on environment in stocks. The bullish side of the trade is going to want to see support build here with a slowing of tapering talks and higher inflation readings. Resistance comes in at 23.45 for the January contract and a push through that is needed to see recent highs tested again. If support is broken expect a move lower, but it should be short lived as the 20-22 range is an attractive accumulation level for longer term traders.

Silver Jan '22 Daily Chart
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Energy - Oil Lower on Variant Restrictions

Oil prices are softer as of Thursday morning, reversing gains from earlier in the week, amid enhanced global restrictions from the omicron variant as well as concern regarding its subsequent impact on demand, specifically fuel. In addition, a downgrade to Chinese property developers (Evergrande and Kaisa Group) broadened anxiety. Weekly inventories were largely muted with stocks falling -241k barrels with the deficit widening to -70.361 million barrels and now -30.986 million barrels below the five-year average. Production increased to 11.70 million barrels per day with the third consecutive week of increases and the highest total since May. Oil volatility (ovx) has fallen from its most recent high of ~78 but continues to remain elevated with today’s range between 62.93 – 74.32.

Crude Oil Jan '22 Daily Chart
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Softs - Key Reversal in Coffee from 10-Year Highs

While coffee’s supply/demand outlook is still bullish, a likely record sized net spec long position has left the market vulnerable to profit taking and longs liquidating their positions. After reaching 10 year highs, coffee made a sharp reversal to the downside with a daily key reversal. When the market could not rally on Colombian production decline, however, a wave of profit taking and long liquidation took the coffee market well below its highs by the close. Guatemalas November coffee exports came in 56% above last years total, which is due in part to the increase in global demand since mid year.

The reversal yesterday is a short term bearish indicator. Momentum studies are trending lower from high levels which should accelerate a move lower on a break below support. The next are of support hits at 23750 and 23345, while resistance is at 24900 and 25650.

Coffee Mar '22 Daily Chart
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Agricultural - Grains - Consolidation in Corn Weekly Chart

Last week I advised traders “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…” In fact, after the break above $5.83 ¼ on December 3rd March corn had an inside day and then has moved higher for the last 3 trading sessions with each session seeing a higher high and a higher low. At the time of this writing, March corn is trading at $5.91, a solid move higher since last Friday. At 11am today the USDA will release the Supply/Demand and Crop Production Report, this could be a market mover. I would recommend traders watch for a breakout above $6.01 ¼ or break below $5.55 ¾ (see red lines below) to gauge short term market direction.

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
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Interest Rates - Interest Rates Waiting on Omicron

Looking at the March 10-year note, overnight we saw a high of 130-24 and a low of 130-043 and currently the contract is trading 130-055.  Last Friday, we saw payrolls come in much weaker than expected that pushed prices to a new high for the move at 131-16, adding to the strength was the new variant that surfaced. There is not enough data for scientists to conclude if Omicron is worse than the current Delta strain. There have been reports in the last few days that say it might be more contagious, but symptoms mirror the common cold. That has taken a lot of the steam out of the note this week and traders are now focused, or let’s say refocused, on the inflation debate and the continued bottlenecks in the economy that continue to drive goods and services to levels that the consumer has not seen in years.  There has also been Fed governors on tape stating that the fed needs to be more proactive in tapering and that inflation is still too high and is starting to put a dent in consumer spending. So, as many in the fed circle have become more hawkish and early indications say the new variant may be much less dangerous than previously feared, I wouldn’t be surprised if the high we saw last Friday will be the high for days and weeks to come. A close below the 50-day moving average at 130-06 might be exactly what the bears are looking for.

10yr Note Mar '22 Daily Chart
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Equity - Recovery in Stocks Takes a Breather

After a strong recovery from last week’s washout, the incredible, 3-day rally we’ve seen is fizzling out in the early going today.  Traders that bought the dip are taking profits at/near the top end of the ranges.  Traders that were a bit early (myself included) were happy to unload for smaller losses.  Covid fears, talks of ramping up the taper, debt ceiling woes, and increased global tensions were just a few of the reasons markets finally put in a meaningful correction. 

A week later, the omicron variant seems to be milder than past variants.  While some parts of the world will likely handle things differently, it appears we will avoid lockdowns domestically barring some other news.  Taper talk will be addressed following the FOMC’s two-day meeting next Tuesday and Wednesday.  Debt ceiling theater continues, but that is usually nothing more than that.  Theater.  President Biden and Putin met via Zoom, but initial reports lack any indication things are calming down at the Ukrainian border.

So where do we go next?  Does the Santa Claus rally take us higher?  Will Powell indeed “double down” on the taper as some have suggested?  It’s hard to say, but I think it is a good time to keep positions light until a clearer picture emerges. 

E-mini S&P 500 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.

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