March 10, 2017

Volume 11, Issue 10

Feature Article

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

2017 Futures Outlook

 

Have you received your 2017 Futures Outlook report?

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.

 

Request Your Copy Here!

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Exchange Info

Agriculture: El Niño, La Niña and Trade Policies

By CME Group

 

Off the Charts

 

The weather outlook seems benign for crops like corn and soybeans in the Americas this year but shifts in U.S. trade policies could fuel market volatility.

Podcast

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Metals - Gold

April Gold: Is the Rate Hike Priced In?

Joshua Graves

April gold has seen quite the selloff over the past few weeks. It’s no surprise that the fed is all but going to raise rates next week. April gold is currently trading around 1200, with a recent low being posted of 1194. From a fundamental standpoint, the market knows that a rate hike has been coming for some time. The world’s largest gold ETF saw their holdings decrease by 2.67M tonnes on Thursday, along with weaker exports of gold to China being reported last month. There appears to be some news that the ECB is moving in the general direction of reducing their QE program. The general bias in gold definitely favors the bears at this point.

Let’s take a look at gold from a technical standpoint. Right now April gold has broken the psychological $1200 level. If you draw a Fibonacci retracement from the December 2016 lows to the February 2017 highs, the 50% retracement support level comes in right at 1195. Today we basically came down to this level and bounced off of it. The next level of support will come in at 1180 if 1195 is taken out. The real question to be asking is, how much more downside is there following the FOMC meeting. My guess is that there most likely is another $20 worth, if that much. There are ways to play the fed meeting in April gold and not necessarily have to take a directional stance. 

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 - Silver

Sliver is in the Box

Eli Tesfaye

May silver is trading $16.975 down 32 cents on the day. All eyes are on employment situation data this Friday. A positive number will continue to reinforce the Feds agenda that tighter monetary policy is the path going forward. The Fed will release their minutes next Wednesday and market participants are anticipating a rate hike. Given the positive ADP report, not seen since Oct 2015, the job report will most likely will have positive outcome on Friday. Also, next week, we shall expect the Fed to raise their benchmark rate an additional basis point, so the silver market is pricing another rate hike in March and possible Fed hint on subsequent rate hikes. No surprise here for metals selling off.

With geopolitical risk on the sideline for now, there is nothing coming to silver's rescue.  As I stated before, continued turbulence out of Asia warrants monitoring the geopolitical concerns that may arise over the South China Sea. 

From technical prospective, silver futures in May contract are trading into the box as shown on the chart below. It’s a move back 50-60% retracement from a recent high and resent low. Markets are forward looking, and in my opinion, much of this rate hike talk will most likely be priced in sooner rather than later. If the box holds, market would most likely rebound from these levels. Approaching the market using option strategy might be the way to participate in the metals at this point in time. 

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 Daily Chart

Silver Daily Chart

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Energies - Crude Oil

After Weeks of Record Inventories, Crude Finally Breaks

Dan Hussey

With the ninth straight build in crude oil inventories reported by the EIA, April ’17 crude futures finally broke lower and accepted the fundamental consensus that there is just too much oil in current reserves.  With last week’s report of a meager 1.5 million barrel build, the March 8 report of 8.2 million barrel build was just the confirmation the bulls needed to throw in the towel and let the bears have the day.    

Since the start of 2017, WTI crude futures had found support and a range bound market.  The lows of this range were clustered around the 52.00 handle, and with crude now comfortably below this area, I would expect 51.50 to 52.00 to make for good resistance if the market decides to test higher.  For now, April crude is finding support, as expected, into the 50.00 to 48.60 Fibonacci support zone.  This Fibonacci support is created by the 50% and 61.8% retracement levels of the rally form the lows of August to the highs of January. 

In my opinion, WTI Crude has confirmed its intention, and the battle over trend that has dictated price action since the start of 2017 has come to an end.  Falling back into a longer time-frame range means opportunities to sell into resistance, as crude tries to find its next major support.  Broken support from the start of this year, from the 51.50 to 52.00 area, should now be tested as resistance and should keep the market suppressed for the foreseeable future.  To the downside, the 50.20 to 48.60 Fibonacci zone is the only real supportive area before prior lows around the 45.00 handle.  With the technical picture now starting to re-align with the fundamental picture of oversupply, added conviction in crude trading plans is on the horizon.

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.

Crude Oil Daily Chart

Crude Light 240 Chart

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Softs - Sugar

Sugar: Heavy Chart, Technical Damage

Joe Nikruto

This week’s comment finds the May sugar futures contract under pressure.  After dropping out of the bottom of the channel at the end of February the May contract consolidated and then began its dive again.  Shedding almost 150 points earlier this week, sugar futures are now squarely back below the 50 day moving average, 20.06.   Wire services point to a lack of bullish news to feed the commodity trading funds who are heading for the exits in a mad rush. This combined with the technical damage that has been done has brought the open interest in sugar futures down over 200k contracts in the last 4 weeks.  Recent headlines in the financial press speak of a large physical commodity trading concern that has recently been stockpiling sugar by taking delivery of futures contracts.  Ironically, the headline hit on a day sugar was down 75 points.  Technical traders who took profits on the break are looking at the damage done to the chart and hoping for a higher level to short from again.  They may get the chance as today’s price action shows May sugar stabilizing just above 18.00 and closing higher on the day at 18.47. 18 day moving average comes in at 19.80 and will likely be an area where technicians look to re-establish shorts.  I continue to think that sugar is not as plentiful in terms of what can actually be purchased.  Asian buyers wait in the wings looking to fulfill needs not met by domestic production.  These fundamentals do not match what we can clearly see on the charts.  The ‘Head and Shoulders’ pattern that can be seen on a chart of May sugar futures shows a neckline that comes in near 17.00. Violation of the neckline points to much lower prices for sugar futures.  Oftentimes, this topping pattern if it does not resolve with lower prices, and in fact the price of May sugar futures contract continues higher, is a very powerful pattern in itself.  Near 18.00 could be a level for aggressive traders to try play for a bounce to 19.00 or better but the chart is heavy.  My suspicion is, that should the news flow shift back to bullish, May sugar could find its way back 20.00 and above very quickly.  However, the chart is heavy and the burden of proof is on the bulls at this time.

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@rjofutures.com.

May '17 Sugar Daily Chart

Sugar Daily Chart

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Softs - Coffee

Get Ready to Pay More for Coffee

Hector Galvan

The coffee market has made it tough for the trade to decide if all the recent news out of Brazil is in fact going to push the market higher.  Recently, news out of Brazil illustrates a market that is pressed for coffee that it likely will not be able to deliver.  In addition, the technical levels on the chart also seem to paint a picture of a market ready to run higher.  Therefore, the question now is, should we take these signals as an opportunity to trade some bullish strategies?

Recent news reports that Brazil exported about 400k fewer bags of coffee in the month of February than the year prior.  It has been a consistent run of bad news as the country may produce as much as 2.5 to 4.5 million bags fewer year over year.  Unfortunately, this has given rise to the argument that if Brazil cannot produce enough coffee, it will have to be forced to import coffee to meet the needs of production and keep prices in check.  Dry conditions have made it difficult for Brazil to recover from two poor Robusta growing seasons.

The technical outlook gives me the impression that the last ten days of sideways trade may soon give way to a move back to 145.00, and then to about 154.00.  The market has had a tough time making it past the 138.00 level which is what I believe is required to see another leg down in prices.  One should use that level to gauge how much risk to take on any bullish strategies. 

In the end, it may be best to consider using options to keep a more defined scope on risk.  However, since we are close to the 3 month bottom, using futures to take advantage of any moves higher may also be worthwhile. 

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 Coffee Daily Chart

Coffee Daily Chart

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Agriculture - Grains

Video - Daily Market Update - Grain Futures - 3/10/2017

Stephen Davis

Bearish across the board, grains continue to see action globally.

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

Discount to Cash Supporting Futures

Last month’s COF report was considered neutral to supportive. The higher slaughter reflects current feedlots and higher placements reflect the discount past April futures. The product market continues to show strength and packers have enough margin to bid up the fed cattle. That being said the charts still have room to fill in to the downside but may not till April goes off the board.

I mentioned last blog that selling options in this market may be a good way to gain exposure in a trade with a strong case for both sides between 108-132 in the front-month live cattle futures. The largest volume accumulation over the past 6 years has been between 116-120 on a continuation chart. If April washes out longs slightly, we’ll probably see 112 with value support at 110. A larger washout would test 107.50 area which is an area Elliott Wave analysts are discussing. Weekly and monthly washouts in front month go as low as 104-105 area in front month live cattle futures. If you are new to futures’ options consult your broker for risk considerations.

COT reports show a positive but not bearish net long in the non-commercials and this Friday’s update may take some of that off the board since last Tuesday was the highest close since the end of January as Feb 17’ went off the board (but likely not much).

Deferred live cattle futures may still be cheap considering the strong product market as the retail end seems to be buying some of the demand back. Good weather and animal instincts should contribute to more steaks on the grill this Spring. 

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

Livestock Monthly Chart

Live Cattle – April over June Spread

Livestock Monthly Chart

Live Cattle Monthly Continuation

Livestock Monthly Chart

 

Source: Track'nTrade

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Currencies

USD Grows as We Wait for Fed Decision

John Caruso

USD continues its path higher, gaining 81 points thus far for the week of March 6.  A strong US growth and employment picture coupled with a “hawkish” interest rate environment keep the bulls in charge for now.  The CME Fed Fund Futures are now forecasting a 100% chance of a 0.25% interest rate hike at next week’s FOMC meeting.  The technical picture still suggests that further upside potential remains, and with the potential for a strong NFP Employment reading on Friday March 10th could be the fundamental catalyst that helps drive the USD Index futures to test its annual high of 1.03815 obtained on Jan 3, 2017.  The strength of the USD has seemingly tempered US inflation expectations which have been slowly gaining momentum since Q3 2016.  

Inversely to the USD Index, the outlook for the Foreign Currencies (EUR, BP, CAD, AUD) has been extremely grim as of late.  The Euro currency has surprisingly held up the best this week, and may be attempting to find some intermediate term support along 1.0500, however the path of least resistance remains lower.  The March British Pound has suffered a more than 400 pt correction since the end of February, which can largely be attributed to the strength of the USD/hawkish US Federal Reserve and also the BREXIT effect.   However, we believe there’s much to be encouraged by in the UK regarding the longer term UK growth and inflation picture.  Having recently heard from the UK Finance Minister regarding positive momentum in British economic conditions, its of my belief that the British Pound could be one of the most undervalued world currencies at the present moment.  As always, good luck out there, and feel free to reach out to me for any questions and or directional trade strategies by email. 

Note: Bullish structure on the USD since FEB 1; Key pivot area would be a close below 101.400.

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 U.S. Dollar Index

Dollar Index Daily Chart

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Interest Rates

10-Yr T-Note Reinforces Bearish Count, Defines New S-T Risk



Overnight's clear break below the past three weeks' 123.09-to-123.06-area support reinforces our longer-term bearish count and leaves Mon's 123.275 high in its wake as the latest smaller-degree corrective high and new short-term risk parameter the market is now minimally required to recoup to even defer, let alone threaten this call.  Former 123-1/4-area support is considered new near-term resistance ahead  of further and possibly accelerated losses.

This tight but objective risk parameter may come in handy given the market's encroachment on the extreme lower recesses of not only the past quarter's 122.10-to-125.03-range shown in the daily close-only chart of the now-prompt Jun contract above, but also the pivotal lower-122-handle-area that has supported this market since Sep 2013 shown in the weekly chart below.  On the heels of Sep-Dec'16's (3rd-Wave) meltdown, the past three months' mere lateral chop is likely a (4th-Wave) correction ahead of a resumption of 2016's bear trend.

We fully anticipate an eventual break below the 122-1/4-area floor that could expose the next leg of what we believe is a new secular bear market in Treasuries OR produce a major bullish divergence in momentum and an interim correction higher.  We can only address that bridge when we come to it.  But while the lower-122-handle remains unbroken, there's really no way to tell how much further intra-range chop between 125.03 and 122-1/4 this market might still have in store.  We can objectively prepare for such chop IF/when the market recoups 123.28.  Until such minimum strength is produced, there's no way to know that the bear isn't going for that key 122-1/4 threshold straight away.  Fri's key Feb unemployment report is the kind of report that's capable of produce a sharp move either way, so identifying these technical cut-points like 123.28 and 122.07 to base trading decisions on is important.

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

10 yr Treasury Daily Chart

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Equities

Consider Put Diagonal for Safe Way to Top-Pick S&Ps



In yesterday afternoon's Technical Blog we discussed the bearish divergence in short-term momentum below 28-Feb's 2357 smaller-degree corrective low.  This mo failure defines 01-Mar's 2401 high as one of developing importance and a more reliable risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed.  Overnight, on an even tinier scale, the market's failure to sustain losses below Wed morning's 2373 minute corrective high confirmed a BULLISH divergence in momentum that defines yesterday's 2354 low as the END of the decline from 01-Mar's 2401 high and a MICRO risk parameter from which very, very short-term bullish decisions can be objectively based and managed.

Welcome to the world of technical and trading SCALE acknowledgement and the importance of knowing one's personal risk profile around which to base and manage the risk of directional exposure.  All too often traders seek as small a risk as they can find BUT look for major profits.  This is a totally-luck-filled fantasy world that has been the domain of church and Little League raffle ticket forever.  Occasionally one can hit such a Lotto, but expecting such as a trading strategy is a losing proposition.

Very, very tight risk parameters are easy to identify, like yesterday's 2354 low.  But there's no free lunch and the benefit of such a tight and objective risk parameter comes in exchange for whipsaw risk.  There is nothing wrong with this, unless the trader doesn't acknowledge this clear and ever-present relationship.

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

Emini 240 min Chart

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