RJO FuturesCast

December 20, 2019 | Volume 13, Issue 51

The Markets

Metals - Bulls Seem to Be Leading Silver

March silver is trading 17.25 up about 10 cents on the day. This morning, the bulls seem to be in charge as the technical landscape is continuing to be supportive of silver. A break above $17.50 is needed to give the bulls the confirmation that near terms lows are potentially in. The global outlook for silver continues to be supportive. I have been watching the copper market closely and will comment on that soon, but in general, industrial demand for metals as the economy continues to rip and roar will be strong. Silver is generally friendly to the stock market. Other factors to consider are the Chinese domestic problem that could potentially could ad additional support. Overall the trend is up; a close below $16.50 will probably trigger a sell-off. I could see silver trading range-bound between $15-20 for a little bit proving a range-bound trading strategy using options.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or etesfaye@rjofutures.com.
Energy - Oil Heading for Third Straight Weekly Gain

Oil is under pressure in the early session following a continual daily grind higher and is on pace for third straight week of gains despite a surprise decline in U.S. crude stockpiles on Wednesday. Sentiment has largely settled with oil trading near three-month highs amid improving demand expectations following the completion of a ‘phase one deal’ between the U.S. and China. This comes as a U.S. probe has reported that the attack on the Saudi oil facilities in September came from the north, reinforcing earlier assumptions that Iran was behind the attack, which only serve to heighten geopolitical risk. Prices have also gained momentum from OPEC and other major producers agreeing to further output production cuts. This has come despite the waning open interest and thin volume around the holiday season. The market remains bullish trend but signaling immediate term overbought with today’s range seen between 58.50 – 61.66.

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 - An Opportunity in Coffee

Mar ’20 coffee futures continue with volatile price action but at the time of writing have rejected the lows and have potential to reverse positive as bulls seek to push this rally forward. The previous 3 trading sessions have seen extreme volatility being 3 of the largest daily ranges March coffee has seen! So far, the rally has remained supported by strong fundamentals with tightening supplies and strong demand but after several weeks of steep gains it’s reasonable to expect some resistance. It’s possible that the overbought condition has been corrected but the bulls should be cautious about a sharp pull back in prices if coffee closes below resistance levels. On the daily charts Mar ’20 coffee I still in a strong upward channel, the funds have covered their shorts and are now strong buyers, and the fundamentals are still bullish. In my opinion, there is still an opportunity in coffee.

Agricultural - Grain Futures Update w/Stephen Davis - 12/20/2019

Stephen Davis discusses this week's movements in the grain markets. With the Phase One Trade Deal signed, Stephen discusses how China will impact the grains through the use of monthly charts

Agricultural - Live Cattle Market Starting to Pull Back

After what looked like a breakout in the live cattle market on Friday after a $2.37 rally with the news of Phase 1 of the China deal being done, we are starting to see a little bit of a pullback in the market after Monday and Tuesday’s trade. I see the market continuing to trade sideways or down for the rest of the week and test the 10 DMA at $125.815 (FEB Contract). If more details emerge on what China will be buying, then I would think this market bounces off the 10 DMA and make another move to the upside. The April contract showed us that a top is in with a possible key reversal on the chart and that could signal to the longs in the market to liquidate their position giving back the premium the futures market had to the cash for the near-term.

Managed money fund traders held a relatively large net long position of 78,214 contracts in the last COT update. The USDA boxed beef cutout was down $3.05 at mid-session yesterday and closed $4.27 lower at $212.81. Cash trade for Tuesday was quiet with no trades reported and the drop in the boxed-beef market was the biggest one day drop since Nov. 7 and the lowest since Oct. 7.

 Finally, we have the Cattle on Feed report comes out this Friday and the expectation is that the placements are going to increase 1.2%; marketings are looking to be 2.6% lower than last year; and the on feed number is expected to increase 1.9% from last year. The USDA estimated cattle slaughter came in at 123,000 head yesterday. This brings the total for the week so far to 243,000 head, unchanged from last week, but up from 228,000 a year ago. If we get the numbers that are expected in the CoF report then I suspect that would be the confirmation of the downturn in the market and have further liquidation of the longs, with a target of 122.50 to 120.00 in the Feb contract.

Currency - Fed’s Inflation Target Looks to Push the Greenback Lower

March U.S. dollar futures are 17 points higher Friday morning after a week of gains. This retracement higher is likely the result of higher interest rates and an oversold technical condition. Continue to watch the 96.58 level; any close under key support should hint at further downside. Fundamentally, the breakdown in the dollar can be attributed to two things. The first is the injection of liquidity being pushed into the US economy by the Fed. A higher supply in any market will drive prices lower. The second factor pushing the dollar lower is the business cycle. Higher inflation is one of the goals of the Fed and is often observed during later stages of the business cycle. The dollar index is most heavily weighted against the euro and the pound, so those currencies have the most to gain if the dollar breaks. Once inflation returns to the economy, it will elevate the price of commodities across the board, so commodity currencies, like the Australian and Canadian dollars, will likely move higher as well.

Equity - Trade Optimism for the New Year

U.S. stock futures are climbing to new record highs this morning as traders are staying optimistic that Washington and Beijing will sign a long- awaited trade deal early this new year. U.S. Treasury Secretary, Steven Mnuchin , said that the deal had already been written and translated and it would not face any renegotiation. “We are going through a technical issue now where again the agreement is translated,” Mnuchin said on CNBC. “I don’t expect there’s any changes. We’ll sign the agreement in the beginning of January.” Overall, the increased Chinese purchases of U.S. agricultural, manufactured goods, energy and services will add roughly a half of a point in the next two years to US economic growth. 

This year the S&P 500 is up roughly 28%, on a dovish Federal Reserve, upbeat economic indicators and expectations of the improving trade relations between the world’s two largest economies. The market hit a sixth straight intraday high on Thursday with the benchmark index gaining 1.2% this week.

Resistance is showing 322000 and 322500 while support is checking in around 320300 and 319000.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-861-1656 or jyasak@rjofutures.com.

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