January 27, 2017

Volume 11, Issue 4

Feature Article

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Metals - Gold

Gold, is the shine expected to continue?

Joshua Graves

Let’s take a look at February gold from a technical perspective to start. Gold has seen quite a rally from the lows back in December around 1,127. Right now, as of Friday, the MACD is about to cross to the downside indicating a reversal in trend. Couple this with a trend that was broken on Wednesday as shown on my chart below. We are right up against the 50-day moving average at 1,178, and this coincides with the 38% retracement level. If we are unable to hold this level look for a test of the 50% retracement level at 1,170, and 62% retracement at 1,160. To give the gold bulls some reassurance, we had in fact formed a double top recently, were very much overbought, and in my opinion due for a bit of a pullback. The question is, when do you jump back in and position yourself for a rally? I believe 1,170 is the support level to watch, and structure a trade from this level. Feel free to contact me for more information on how to play this from a bullish or bearish perspective.

From a fundamental perspective, Feb gold has been under pressure from a continued surge in the US stock market, and little market fear to give the precious metals reason to rally. Traders are watching the rising tensions between the US and Mexico, as a potential to cause some panic in the stock market and this flock to the safe haven precious metal. Today, traders are closely watching how gold will trade following poor GDP growth of 1.9%, as the consensus was 2.2% for Q4. Durable goods orders came in well below expectations this quarter with defense aircraft order downsizing being the main culprit. Durable goods came in at -0.4% with a consensus of +2.6% expected. Gold is currently holding in the 1,180 range on the poor economic news. I can be reached directly at 312-373-5383 for more information on how to play the Gold market. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-435-4805 or jgraves@rjofutures.com.

Feb '17 Gold Daily Chart

Gold Daily Chart

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Metals - Silver

Trump Equals Volitlity

Eli Tesfaye

March Silver contract is trading $16.81, down 18 cents on the day. The ongoing theme is that the strength in the US dollar has put a tremendous amount of pressure on metal markets in general, and silver is no exception. Since December 2016, silver has been trying to build a base and post a formidable rally off the December $15.60 area lows. The recent weakness of the last 24 hours, in my view, is nothing but a pullback and consolidation price action. What I find interesting is that silver has been generally friendly to equities, but has recently been moving away from that positive correlation, even as the Dow Jones is posting over 20K.

It has been a very interesting afternoon, as Mexico's President Peña Nieto canceled his meeting with President Trump in their ongoing clash to make Mexico pay for the wall. In my view, this is but the beginning of a long list of US relations that will be tarnished by this administration.  President Trump’s comments and actions are a constant concern for the metals market, and until the honeymoon phase is over, should warrant higher volatility for silver.  Once his administration is able to pursue their plans of economic improvement, things may calm down.

From a technical perspective, silver futures should continue to pull back a bit. I look forward to reviewing the COT report this Friday to see Non-commercial and Non-reportable positions. As I stated in a previous RJO FuturesCast, traders need to monitor Fed language to see how aggressive they will be when tightening monitory policy, which could put a bit of pressure on silver.  Continued turbulence out of Asia warrants monitoring the Geo-political concerns that may arise over in the South China Sea.  It's clear that there are plenty of headlining events that could spark volatility in the silver market, and extra attention to global events should be a top priority.

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.

Mar '17 Silver Daily Chart

Silver Daily Chart

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Energies - Crude Oil

Will Crude Oil Futures Break Out of Consolidation?

March WTI crude oil futures have finally shown the first signs of breaking out of its tight 2017 consolidation range.  In what has been choppy trading into 2017, the oil market is looking primed to break it’s now $2.00 range as stops are likely being hit above 53.67 1/20/17 highs.  The fundamental picture has likely been price into the short term, with the 1/25/17 EIA Petroleum Status Report finding a 2.8 M barrel build in crude oil inventories.  The recent rally in crude oil futures is a bit counter intuitive to the recent reports, so it’s likely the market is weighing in on comments from President Trump at this time.

From a technical perspective March crude futures are performing in line with our prior futures cast, where I was cautiously bullish on crude, with support clearly causing a sideways compression in the market. March oil prices still remain above prior highs that were made on 11/22/2016 at 50.83, and formed the bottom of a supportive price band which first proved as support on 12/7/2016 at 51.80.  This price band has continued to offer support for oil futures into the New Year, and now I am expecting the market to test prior highs at 56.24.  The 100% equal legs Fibonacci extension also has proven supportive at 52.04, a measurement that is traditionally used to find support and resistance level in a market.  This same Fibonacci extension has a technical upside target of 58.74, and a 100% projection of the range crude futures have been consolidation between projects to 57.20 if a break of highs is realized.  I expect resistance to the upside first at the 100% projection of 57.20, followed by the 58.74 projection in the coming weeks.

In my opinion, crude oil futures are still holding key supportive price levels and have possibly begun to break out of a consolidation range in this market.  We can expect to see follow-through to the upside, however, a pullback to retest the broken trend line resistance (now as support) could offer a chance for those wishing to be long, to position themselves for a move higher.  This support area would likely be on a test of the 53.00 handle, and below 52.50 could signal that the range between 56.18 and 51.65 remains.  With larger time-frame reversal to test towards the 60 handle still in play, I believe there is still a bias for a rally out of this range.  Breaking, and closing on a daily basis, below 51.65 may signal for a larger pullback and test of the 50.00 handle.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or dhussey@rjofutures.com.

Mar '17 Crude Oil Daily Chart

Crude Light Daily Chart

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Energies - Natural Gas

Further Nat Gas Consolidation Still Likely Part of Broader Peak/Reversal Count

The 240-min chart below shows the market's rejection overnight of the lower recesses of the past couple weeks' range between 09-Jan's 3.098 low and last week's 3.513 high.  On the heels of late-Dec/early-Jan's 5-wave impulsive decline however, we continue to view the past two weeks' lateral price action as merely corrective/consolidative ahead of an eventual resumption of the early-Jan's initial counter-trend slide that could produce surprising weakness in the weeks and even months ahead.  A return to the upper recesses of this recent range around 3.51 or even a bit higher should not surprise while 09-Jan's 3.098< low and short-term risk parameter remains intact as support.

From a longer-term perspective we remain bearish following the unique and opportunistic combination of a confirmed bearish divergence in momentum following 03-Jan's failure below 20-Dec's 3.290 low and historically bullish sentiment.  Indeed, the recent 74% reading in our proprietary RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC is the highest since that that warned of and accompanied Feb 2003's peak and sharp correction lower (shown in the monthly log chart bottom).  Currently reflecting 259K Managed Money long positions to just 96K shorts, this indicator warns of vulnerability to lower- and possibly sharply lower- levels as the market forces the capitulation of this long-&-wrong exposure.

RJO Futures clients may login here to the client portal and access all RJO Market Insights.

Feb '17 Natural Gas 240-min Chart

Natural Gas 240 min Chart

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Softs - Cocoa

Cocoa Used This Week to Base Itself Out

We are now in a situation where we have to look into the next couple of months for direction.  We have much of the evidence that analysts use to track the market out of the way.  Grind numbers for the 4th quarter of 2016 were not ideal, but were also not catastrophic for cocoa.  In addition, a mild Harmattan in West Africa will likely keep mid-crop disruptions to a minimum, if any at all. 

Cocoa was trading at around 2800 at the start of the 4th quarter of 2016.  It was one of the toughest quarters in many years, as the price of cocoa began its trend down to 2200 over the span of 3 months.  Many argued that stagnant demand due to high prices, and the overwhelming supply from farmers who needed to sell, weighed the price down.  Grind numbers illustrated that North America and Europe were not quick to consume at those levels.  Yet, the Asian market blew expectations out of the water by coming in almost 17% over the same time a year ago.  I would argue that the longer we stay at these prices, the more demand we will have from end users who will use these prices to hedge long-term, and from producers that will likely hold back future sales until we see a bounce back to 2400-2500. 

Additionally, the Harmattan, a dry easterly wind that blows out of the Sahara from December to February in West Africa, has been mild this year.  This phenomenon has been known to block out the sun and devastate crops by stunting the pod yield.  The dry wind is so powerful that it can break trees and increase the risk of fires.  Luckily, this year the Harmanttan has spared the growing region from having to calculate down yields for the mid-crop. 

I have been looking at different strategies to take advantage of scenarios that would see higher prices in the next few months.  At this point, both futures and options look to be viable roads to take.  However, options can mitigate some of the pressure by giving a trader defined risk on a longer term hold. Feel free to drop me a line and we can discuss strategies in more detail.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 877-963-6484 or hgalvan@rjofutures.com.

Cocoa Daily Chart

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Agriculture - Grains

Video - Daily Market Update - Grain Futures - 1/27/2017

Stephen Davis

RJO Futures Senior Market Strategist Stephen Davis discusses the grain futures markets. The elimination of the TPP is important for grains, but not as important as our export relations with Mexico and other big US grain buyers. Wheat comes in surprisingly positive. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7181 or sdavis@rjofutures.com.

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Agriculture - Livestock

Futures Discount to Cash Supporting Fed Cattle

Live cattle futures have been supported recently by a strong cash trade, rising consumer confidence levels, and technical momentum. Additionally, feedlots have become more current which is providing more pricing power. Cash traded $122/$123 late last week, and reportedly bids were $124 in the plains with offers at $125 an up.

Open interest is building, but the move higher this week has not seen strong volume. COT report based on positions through 01/17 showed high but not extreme net longs in the non-commercials. While the charts show a bullish formation spanning back to Oct/Nov 2016, the weekly and monthly futures continuation charts show the trade just over the lower quartile of a value area between 116.50 and 129.50. There is some fib resistance just under 127 and the EOD daily continuation area at 132.75. Dave Toth of RJO Market Insight identified 113.975 as the key corrective low the market needs to hold. His post from January 10th offered cautious bulls to go long under 118.50 OB.

The fundamentals are bullish overall, but current packer margins are in the red and monthly cold storage set an all-time record as of the end of December, which is not surprising given the large amount of production in 2016. While some of this is short-term bearish, the retail space should be able to have the margins to keep beef moving and slowly rebuild some demand.

The trade may be light going into Friday’s Cattle on Feed report. Contact myself or your broker for pre-report estimates or access through RJO Market Insight.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-861-0382 or jgilfillan@rjofutures.com.

Live Cattle Feb 2017 Daily

Source: Track'nTrade

Livestock Daily Chart

Live Cattle Weekly Continuation

Source Track’nTrade

Livestock Weekly Chart

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King Dollar Should Continue to Prevail

John Caruso

We’ve seen a multi-week correction in the USD Index after peaking at 103.815 on 1/3/17 and trading down to 99.76 in the early morning hours today.  Since this morning, we’ve seen a strong rejection of the low, trading as high as 100.73 in today’s session.  With the recent upward trend in growth and inflation (CPI hit a 32 month high) since the 4th quarter of 2016, we fully expect the USD remains locked in its bullish formation at least in the near-term.  Tomorrow, we’ll receive another US GDP reading (Expecting 2.2%) and US Durable Goods Orders (+2.6% Expected), and could provide further evidence of a strengthening economic picture here in the US.  This coupled with a “hawkish” tilt to the Federal Reserve, should further strengthen the case for a strong dollar in weeks to come.   The dollar should fight to overcome its recent downward slide as the data continues to paint a brighter picture, but must first overcome its down channel resistance level of 101.25.  Good Luck!

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.

Mar '17 Dollar Index Daily Chart

Dollar Index Daily Chart

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The Stock Market in Focus

Greg Perlin

Stocks remained on course for weekly gains Friday, as investors parsed corporate earnings reports and fresh policy signals from the new U.S. administration.  The Dow Jones Industrial Average slipped 4.4 points, or less than 0.1%, to 20097 shortly after the opening bell. The S&P 500 edged slightly lower, while the Nasdaq Composite added 0.1%.

Stocks and Treasury yields were mostly steady after data showed the U.S. economy decelerated in the fourth quarter.  Gross domestic product expanded at an inflation and seasonally adjusted annual rate of 1.9% in the final three months of 2016, the Commerce Department said Friday. Economists surveyed by The Wall Street Journal had expected a 2.2% growth rate. In addition, demand for long-lasting manufactured goods declined in December.

The yield on the 10-year U.S. Treasury note slipped to 2.496%, compared with 2.508% Thursday. In corporate news, shares of Intel rose 1.1% after the chip giant beat earnings and revenue expectations, while Microsoft gained 1.6% after reporting the usage of Azure computing services more than doubled from a year earlier. Shares of Alphabet added 0.8% even after the Google parent missed profit estimates. Despite the day's pause, global stocks remain on track to end the week higher after the Dow industrials closed above the 20000 mark for the first time ever and the S&P 500 and Nasdaq Composite both climbed to record highs. The VIX, considered Wall Street's "fear gauge," hit a more than two-year low this week as signs of an improving global economy and business-friendly policies in the U.S. have helped support risk appetite.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-82-2270 or gperlin@rjofutures.com.

Mar '17 E-mini Daily Chart

Dollar Index Daily Chart

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This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.


The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

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