RJO FuturesCast

Since the Fed announcement on Wednesday, the gold market has added $62.00 of premium. A close today above $1,800 would confirm a short-term bottom and reversal. The next big test for this rally will be in the range of $1.832 to $1,835. I have said before that this next rally would likely have an easier time moving back towards the November swing high of $1,882. But let’s not get too far ahead of ourselves just yet. I like gold and do expect that there will eventually be a challenge of the $2,000 level, however, I’m reluctant to get too excited about gold doing what it should have been doing all along. We have been faked out and disappointed too many times already. Considering all the cash, the money printing stimulus and emergency type measures taken by the government, gold should be much higher. That’s just my opinion! Gold will attract more buying as the trend up becomes more pronounced. When it comes to gold, the higher it goes, the more people want it.

The monthly silver chart was showing signs of life even before the Fed's minutes. Inflation is front and center. The pace of the Fed rate hike might be just slow enough to give silver traders some ammunition to expect higher price action. As I stated in previously, once the Covid-19 variants takes a back seat, silver will shine once more. Also, I have said before, one thing to remember is that rejection of the downside from these price levels (which is playing out in this week's sessions) will result in a strong rally. Seasonal support should come in to support silver right now. The $21.00 level continues to be supported. A break above the $23.50 range would likely extend really near $25.00. The long-term chart shows that you need above $23.50 to reject bearish price action entirely. Please give me a call to discuss strategies from these levels.

Oil prices are falling early in the session after rebounding yesterday and are poised for a weekly loss as uncertainty surrounding the omicron variant continue to dampen sentiment and raise concerns over fuel demand. OPEC+ has stated that it my convene before their Jan 4^th meeting if the demand outlook warrants a change in their plans to add 400k per day in January while simultaneously noting an expected increase in demand for the first quarter of 2022.  In contrast, the International Energy Agency (IEA) came out on Tuesday noting that oil output is set to out outpace demand, specifically domestically, at least through the end of next year. Crude stocks fell -4.584 million barrels with stocks now down -71.810 million barrels below last year and -33.779 million barrels below the five-year average, according to the EIA. Oil volatility (OVX) continues to remain elevated in the mid-upper 40s with the market transitioning to bearish trend with today’s range seen between 65.33 – 73.26.   

Cocoa futures have been trading around 2500. After the lows we saw earlier this month, cocoa futures have been able to rally slightly despite renewed fears of Covid lockdowns. As the Omicron variant spreads and the medical world tries to figure out next steps – commodities have been volatile.

On the cocoa side of the equation, supply issues could be what this market needs to get and trade above 2600 in the March contract. Many areas of the cocoa world are coming in with lower production estimates. Weather premium could also still boost prices as well. If demand can increase in the coming weeks and months, these factors could be just enough to carry the cocoa bulls higher. COT data will give us an idea where trader’s heads are at as we approach year end.

For now, traders should take a cautious approach as the Fed announcement earlier this week gave us an idea of what the next two years could look like. The ECB changing its course of action has also affected the markets and potentially the longer-term moves in their system.

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.

Last week I advised traders “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.” March corn continues to push higher and at the time of this writing it has hit a daily high of $5.98 3/4.  Traders should watch for the breakout above $6.01 ½ .  Yesterday, March corn had an inside day which appears to have been a nice setup since the market is breaking higher today. Watch for the major breakout above $6.01 ½ .

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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Stock futures are trading lower this morning after Thursday’s sell-off in tech sector as traders look past growth stocks in anticipation of a tighter monetary policy next year. Higher rates and the central bank speeding up of their asset purchase tapering has weighed heavily on the value of technology and growth stocks. Through Thursday’s close the Nasdaq composite has fallen 5% in the last month. The Fed is not the only one responding to faster inflation, Thursday also saw rate hikes from Mexico, the U.K. and Norway with the European Central Bank pledging to reduce the rate of bond purchases in the upcoming year.  Europe’s largest fund manager at Amundi stated. “We see a risk of a bearish steepening of the yield curve. This reinforces our negative view on duration and is generally positive for value equites relative to growth equities.”

Support is checking in at 461000 and 457400 with resistance showing 471100 and 477800.

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.

FOMC Highlights:

-Taper accelerated to $30B (up from $15B)
-Dot plot shows and extra hike in 2022 to 3 (up from 2)
-The Fed will not hike rates if A. the Economy cannot withstand one and B. Not until the USA has reached FULL EMPLOYMENT

That last part was the “olive branch” to the bulls. There’s plenty of ambiguity around the definition of “Full Employment”, and when asked about it in the Q&A…Powell bobbed and weaved. Powell even went as far as saying something to the effect that they “didn’t want to roil markets”. That was good enough for a +2.00% rally across the board in the broader stock indices.

Interest Rates: This is going to be fairly unpopular with many, and always subject to change, but my bias still lies on the side of the “bond bulls” at the moment. Why? Well for one thing, bond yields have the tendency to remain “range bound” as growth continues to accel, but the Inflation component of the economy begins to cool. Furthermore, we believe there is going to be a pending shift to Scenario 4 aka Risk-Off backdrop headed into Q2 2022 – which in that case, it’s a clear cut BUY TREASURIES. Once again, this is akin to Q4 2018 – when the FED went HAWKISH right at the cycle TOP! While consensus was bearish bonds (because the Fed was Hawkish obviously), we were BULLISH bonds because we had the highest probability suggesting that the cycle was COOLING and we were moving to Scenario 4 in spite of the Fed being too HAWKISH. You got that? So in essence you could say that the Fed is a HAWKISH as they’re going to be RIGHT NOW.

Side note: The BOE raised interest rates to 0.25% vs 0.10% exp. EVEN in light of the Omicron breakout in the UK. So maybe that should tell you something about how central banks are going to set policy even in the face of Covid19 going forward.

I will be traveling today, but I’ll be in front of the market tomorrow for the morning session and into the close. So if there’s something actionable, you’ll get a signal, and you can call the desk for assistance.

All the best. Good luck.