February 24, 2017

Volume 11, Issue 8

Feature Article

2017 Futures Outlook: What's ahead for the futures markets?

2017 Futures Outlook


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RJO Futures is fired up to once again offer futures traders some of the best insight into the major commodity sectors on where the markets have been and what might be ahead for 2017. The 2017 Futures Outlook isn't just a quick overview; each comprehensive paper included averages 20-pages of in-depth analysis and graphs. Reports include: Grain Outlook, Energies Outlook and Metals Outlook.


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Metals - Gold

April Gold Shines! How to trade it from $1250

Joshua Graves

We’ve all seen how gold has been trading since the end of January; it’s on a tear and has no signs of stopping. The pop in gold on Thursday is significant in a few different ways. For one, it’s broke out to levels we have not seen since the days following the election. The second is that we’ve broken a psychological level of $1250. We are continuing to march right up the trend drawn from the 1180 low at the end of January. It’s clear that if you are betting against gold, you are searching for a reason to be short. Economic data over the past few weeks has been positive, but this week was more neutral, and a bit different given the shortened week. We had a positive existing home sales number well above expectations for January, showing a 3.3% increase for the month. All eyes, however, were on the FOMC minutes on Wednesday. In a hawkish tone, most members agreed a rate hike should happen “fairly soon.” This is obviously negative for gold which would fall following a US Dollar rally on a US rate hike. Right now traders are seeing a 36% chance of a rate hike coming on the March 14-15 meeting. US Treasury Secretary Steve Mnuchin’s comments on the Trump Administration Thursday seemed to help the gold market, which saw an impressive grain to over $1252 at one point. Traders saw his comments as “excessive” and triggered a selloff in the US Dollar, supporting gold.

I look at gold and see a continued rally to $1272, where the 200 day moving average sits. I would look at gold to come to this level and find a lot of resistance. A close above this level opens the all important $1300. How you play April Gold leading into the FOMC meeting will be quite challenging. Traders need to analyze the economic data closely over the next few weeks for any signs of weakness, and sign the Fed will hold off on a rate hike.

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.

Apr '17 Gold Daily Chart

Gold Daily Chart

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Metals - Gold

Gold Rallies as Bitcoin Makes New Highs

By now, you've likely heard of Bitcoin. The crypto-currency has made a new all-time high today, $1,170 last, eclipsing the November 30 high of $1,165.89.  Next month, the Winklevoss Brothers, of Facebook fame, are rolling out the first Bitcoin ETF in the US market.  It is widely expected that the SEC will give it a green light, and this might have something to do with the rally over the last few months.  Almost all commodity-based futures ETFs have capital invested in futures contracts.  So it would make sense that if the Bitcoin ETF, coming up for SEC approval on March 11, is approved, a futures contract may not be far behind.  The explosive rally in Bitcoin, up 58% in the last 3 months, could continue and even accelerate as it gains legitimacy and more exposure. 

Something interesting of note, is the concurrent rally in gold over the last 2 months.  Although not nearly as prolific as the Bitcoin move, April Gold futures have rallied $125, up to $1250, from a post election low of $1127 on December 15.  It will be worth watching this budding correlation to see if it persists.  If so, gold has a lot of catching up to do on the upside.  It has also been reported recently that some of the biggest money managers are bullish gold.  With inflation starting to creep into the picture, and uncertainty in the geopolitical arena, it makes sense to have some exposure to the vehicle that does well under those circumstances, and that is gold.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-672-0664 or thusseini@rjofutures.com.

Apr '17 Gold Daily Chart

Gold Daily Chart

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Metals - Silver

Post Fed Minutes Gives Silver a Lift

Eli Tesfaye

Post Fed minutes dollar weakness is giving the metals, especially silver, a much needed lift. It appears that silver is slowly climbing up as the dollar continues to correct. In the last FuturesCast, I mentioned that the March contract should post a gain towards its 50% retracement from from the high of 2016. In my view, so far at least, weakness in silver will be seen as nothing more than an opportunity to participate in the long side. I have attached a May monthly chart on silver with a potential upside target into the $19.00 area.

The current US administration can’t seem to figure out whether it wants a weak or strong dollar. That in itself would probably make silver very attractive without considering all the other supporting factors. So far, as the stock market is concerned, even the Fed seems to think that the current lofty levels of the equity market are slightly over cooked. My suspicion is that silver will be viewed as a hedge to stabilize portfolios against a potential correction in the equity market. Broader view suggests that silver will have more room to the upside. At this point, traders should pay close attention to inflation data points like CPI and manufacturing indexes to support further gain.

Again, from technical prospective, silver futures should continue advance into the $19.00 level at least. Any pull back would more likely be seen as an opportunity on the long side rather than short. Per chart below, silver would likely head to the 50% retracement. If it manages to continue to close above $18.00 in near term, it would likely make $19.00 a near term target.  As I stated before, continued turbulence out of Asia warrants monitoring the geo-political concerns that may arise over the South China Sea. 

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.

May '17 Silver Monthly Chart

Silver Monthly Chart

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Energies - Crude Oil

Do Fundamentals Matter Anymore for Crude?

With April ’17 crude oil futures moving to the front, not much else has changed for oil market (price action) since the start of 2017.  The range in crude oil futures, between 52.00 handle and the 55.00 handle, is likely reaching a boiling point.  For the fourth consecutive report, the EIA reported a build in inventories of 563k barrels, albeit tiny when compared to the +10 million barrel builds the market saw in recent past.  The reaction from April crude was also tiny at .50, when compared to the previous reports, which previously were met with declines in the price of crude of well over $1.00 (and as high $3.00).  Needless-to-say, the selloffs post these reports have all been faded, and crude has continued to test its range highs with little regard for fundamental opinions.

From a technical perspective, let the broken record spin!  April crude, while it looks prime to break out of its range… is still in a range.  Caught below the 55.00 handle resistance form prior highs, and above the 52.00 handle supportive range, I expect consolidation to continue.  I am cautiously optimistic we will see this range resolve higher, and in the near term, a push to test the continuous contract highs into the 56.76 area may be early confirmation of the bulls taking over.  The price of crude has now broken above trend line resistance, which was pointed out in last week’s article, and this is yet another indication crude may be better bid in the near term.  After this break, seeing crude come back down to retest this broken line as support, and hold a 50% Fibonacci support area at the 53.32 leads me to believe we will see a push towards 55.84 in the near term.

In my opinion, traders will need to continue to expect range bound price action and consolidation above the 52.00 supportive price band, but below the 56.76 prior highs.  While the recent price action is constructive to the upside, the fact remains that this market is still in its treacherous range.  If the price of crude does begin to break down, and can close below the 51.60 recent lows in the continuous contract, I expect the next supportive price band into the 50 to 49 handles.  In due time, this range will break, and when it does the weeks of building positions (and stops above and below the range) should produce a solid move (one way or the other). Define your risk, pick a side, and get ready for what could be a volatile ride.

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.

Apr '17 Crude Oil

Crude Light Daily Chart

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Softs - Sugar

One of These Days, Sideways is Going to End for Sugar

Joe Nikruto

Sideways... Shoot... May sugar futures contract is still only sideways... Every time I think I'm going to wake up to a clearly defined trend, still only sideways.  Each time I look around, the bands move in a little tighter. Oftentimes, when faced with sideways market action or the fatigue that comes with attempting to maintain a bias in the face of a non-trending market, a trader has two choices. Offset the position or revisit the fundamentals, well known though they may be, and attempt to gird oneself against the waves of monotony washing over the trade. In the last two weeks, the sugar market has attempted to break out to both the upside and the downside. Both breakouts failed and here we find the May sugar futures contract right where it was when we started 2017.  Asian demand, in my opinion, is the fundamental that will reign supreme.  The potential for weather related production challenges looms. The idea that South American sugar will arrive on the market without any disruption or the potential for disruption seems optimistic.  With the lowest stocks in 7 years there would appear to be very little room for any global production shortfall.  This, combined with hot money pacing the sidelines waiting for a fundamental story they can turn into a massive technical move makes me believe that the path of least resistance is higher.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-453-4494 or jnikruto@fjofutures.com.

May '17 Sugar Daily Chart

Sugar Daily Chart

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Softs - Cocoa

Difficult Cocoa Market in Sticky Situation

The cocoa market has been difficult to lock down the last several weeks as many in the trade believed we may have found a bottom.  Sadly, it was not to be, and 2000 soon untraveled to a low of 1890 leaving many in disbelief.  However, the goal of higher priced cocoa is still not only on the mind of the trade, but that of the producers.  The question now is, will the trade find enough evidence to push and keep rice’s higher in the next 6 to 8 weeks?

Since the end of August, cocoa has been in a never ending downtrend.  This trend continues to date, but the idea that excess cocoa may now be getting picked up at rock-bottom prices has alleviated some of the stress on the market.  Frankly, cocoa has not been priced at these levels since 2006 and soon after rallied due to the inexpensive ability for end users to buy longer term contracts at significantly cheaper prices.  Therefore, one could argue that lower prices may stimulate a better sales and grind numbers and start to build prices back up. 

Next, a wave of contract defaults in West Africa has also lead to cocoa spoiling in warehouses.  The defaults were due to producers holding onto their cocoa in the hope that prices would rebound.  The rebound never took place, and many instead let cocoa sit in warehouses building up sizable stores.  Thus, instead of letting anything further go to waste we are now seeing auctions take place on defaulted contracts that should support prices for now. 

I would still urge the trade to look at methods of taking advantage of higher prices. The market may still not be on perfect footing, but there are strategies that can help keep someone long for many weeks.  Feel free to reach out if you wish to discuss these strategies in 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.

May '17 Cocoa Daily Chart

Cocoa Daily Chart

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Agriculture - Grains

Video - Daily Market Update - Grain Futures - 2/24/2017

Stephen Davis

Slow news in grains this week as we prepare to buckle down and analyze the March 31 crop report.

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

Fed Cattle Futures’ Discount to Cash Narrows

Both the live cattle and feeders continue to show strength going into Friday’s COF report. In my last blog,  we talked about post 01/27 COF report gaps being filled, and now the futures are creating new gaps below. I would expect these gaps to be filled sooner than later. The recent strength comes from the product market. Hightower Research reported yesterday’s boxed beef cutout value at 196.19 which  was the highest level since January 9th.

Last Friday’s COT report showed non-commercials net long live and feeder cattle but not close to extreme levels so this was mildly bullish. Spreads are still historically wide and present bears another outlet for shorting nearby futures. April / June (see chart) double topped on a daily at 10.00 which was my resistance mentioned last blog. This spread has already narrowed from H/L almost $2.00 so spreaders and outright market bears should look for waning momentum before selling futures or spreads.

If you are bullish, the outrights from June to December look cheap. The futures markets have been discounting the deferreds as a result of larger than expected cattle yet to be placed, cheap feed and large frozen stocks. There are also concens of the potential impact of possible protectionist measures from the new administration although this would impact the pork industry much more. Today’s COF report has a wide range of estimates. The spreads are pricing bullish marketings and bearish on-feed and placements.

I think the beef market is likely going to consolidate with a bias to the upside knowing we’re at a pretty fair value it stands now so option sellers may do well in this environment for the short and intermediate term following today’s COF report.

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 April 2017 Daily
Source: Track'nTrade

Live Cattle Daily Chart

Live Cattle – April over June Spread
Source Track’nTrade

Livestock Monthly Chart

Live Cattle Monthly Continuation
Source: Track'nTrade

Livestock Monthly Chart

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Video Daily Market Update - Currency Futures 2/23/2017

John Caruso

USD well supported, with an unknown future due to the Fed's rate decisions. European currencies remain to the downside.

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.

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Interest Rates

Bonds Hang Tough

Stocks start the week higher and are moving even further up as New York trading resumes Tuesday. The record run in the stock indexes has kept note and bond prices in check, but not under the pressure that one would expect. In fact, we have a series of slightly higher bottoms since the late December lows were put in, although buyers have dried up when ten year yields hit 2.35/2.40. According to the WSJ, corporate and municipal bonds have also attracted some buying this year. The tape action should be respected and although short-term rate hikes are practically a given this year, the market seems to believe that the cycle will be subdued, and that there is some value at current levels out the yield curve. Problems in Greece, unease with upcoming French elections, and the huge run-up in stocks worldwide have some looking for alternative places to invest capital. The U.S. sovereign yields look attractive compared to German and Japanese alternatives. Upcoming reports this week include both existing and new home sales, a number of different federal government speeches, and of course surprise President Trump tweets. Despite all this, I presume that the stock market will remain the major focus.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-500-2461 or jbarrett@rjofutures.com.

Mar '17 30-Year T-Bonds

30yr Treasury Daily Chart

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Interest Rates

Agonizing T-Note Consolidation Continues

Yesterday's break above 17-Feb's 124.29 intra-range resistance confirms at least the intermediate-term trend as up and leaves Tue's 124.125 low in its wake as the latest smaller-degree corrective low and new short-term risk parameter the market needs to sustain gains above to maintain a more immediate bullish count.  This tighter but yet objective risk parameter may come in handy as the market once again approaches the upper resistant recesses of the 125.18-to-123.18-range that has constrained prices for the past two months.

Indeed, the 240-min chart below shows the market's rejection last week of the extreme lower recesses of this range that led to the current rebound.  If the upper recesses of this range are going to once again repel the bull, we'll need a prior corrective low and risk parameter around which to gauge a confirmed bearish divergence in momentum needed to arrest the current uptrend.  Currently this level is 124.12. In lieu of such proof of weakness, there's no way to know that this market won't break 08-Feb's key 125.18 resistant cap and move markedly higher.

10 yr Treasury 240 min Chart

On the heels of Dec-Jan's initial, impulsive rally from 122.26 to 125.07, the subsequent month's worth of merely lateral chop to 15-Feb's 123.31 low in the daily close-only chart above is very likely just the (B- or 2nd-Wave) correction to that preceding Dec-Jan rally that we believe is now poised to resume to new highs above early-Feb's 125.115 high.

Against the backdrop of the long-term downtrend we still strongly suspect that all of the price action up from 16-Dec's 122.265 low is corrective, suggesting the current rally from 123.31 is the completing (C-Wave) of a correction ahead of the eventual resumption of what we believe is a new secular bear market.  HOWEVER, we never pick tops or buck a trend without a confirmed bearish divergence in momentum needed to, in fact, stem that trend.  Because in this case, and until such a mo failure stems the rally, there's really no way to know that the rally from 123.31 isn't the 3rd-Wave of a major reversal higher.  Herein lies the importance of identifying a tight but objective risk parameter like 124.12 discussed above.

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