March 24, 2017

Volume 11, Issue 12

Feature Article

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Volatility is a key concept that experienced options traders have had to master in order to achieve consistent results from trading options. It is a crucial aspect that often gets overlooked by newbie traders and can lead to detrimental consequences. If implied and historical volatility is all 'greek' to you, then you could find value by joining this webinar!

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Feature Article

May Beans Reaffirm Bearish Count, Nov Beans Next?



May Soybeans: Yesterday's break below the past week's 9.94-area lows and support may not seem like that big of a deal relative to the past couple months' 9.5% slide, but it is because it identifies Mon's 10.09 high as the latest smaller-degree corrective high this market must now SUSTAIN losses below to maintain a more immediate bearish count that we believe could/should morph into a more emotional, fundamental affair.  In this regard 10.09 become our new short-term risk parameter from which a still-advised bearish policy and exposure can be objectively and effectively rebased and managed for short-term traders with tighter risk profiles and even for longer-term players who may want to manage a portion of their bearish exposure more conservatively.

May Soybeans 60 min Chart

May Soybeans Daily Chart

The downtrend is clear in the daily chart above.  For what they're worth (nothing, actually, without an accompanying bullish divergence in momentum above a level like 10.09), we have noted a couple of neighboring Fibonacci progression relationships at 9.78 and 9.75.  From a broader perspective shown in the weekly log active-continuation chart below, the market remains deeps within the middle-half bowels of the past couple YEARS' lateral range where we always consider the odds of aimless whipsaw risk as being higher than otherwise.  IF a broader move south is either going to be deferred until some other time and condition OR negated in favor of a broader base/reversal count, then somewhere along the line this market would be expected to arrest the current and clear downtrend.  Its failure to sustain levels below 10.09 would be the first indication of such. Until or unless such 10.09+ strength is proven, further and possibly accelerated, emotional, fundamental headline-driven losses remain expected and to what could easily be levels around last Sep's 9.34-area lows or below.

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

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Metals - Gold

Market Pulls Gold, How Will You Prepare?

If you are starting to think that stocks cannot keep going straight up regardless of the news, economic data, or monetary policy, then you should consider investing in gold futures. Gold is the one commodity that is a legitimate investment. Throughout history, gold has held its value. Gold futures based a long term bottom in December 2015 at $1,050 per ounce. More recently, gold has based a new bottom at $1,200 per ounce, so all markets must correct. Market corrections are good because they test the strength of a market, and the stock market is long overdue. Most people seem to believe that the rally in stocks over the past seven years was mostly due to artificially low interest rates for an unreasonably prolonged period of time. We will begin to normalize rates in the U.S., because inflation will heat up as jobs come back and as tax reform is implemented. Inflation will be undeniable, and the Fed is way behind the curve. 

Gold is typically a great way to hedge inflation, as it tends to performe well when inflation heats up. When money begins to shift from stocks and back into gold futures, we could blow right through the $1,400 and $1,500 levels. Evidence of inflation may be lagging right now, but it will happen.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or fcholly@rjofutures.com.

Gold Daily Continuation Chart

Gold Daily Chart

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Metals - Silver

Silver has some catching up to do with gold!

Eli Tesfaye

May silver is trading $17.645 up about 5 cents on the day. As per the shaded areas on the chart and my monthly, weekly, and daily analysis, momentum favors the upside. What I find interesting is that the silver to gold ratio has been trading in a tight range since 2016. What I mean by that is that today, front month April Gold is trading 1243.70 and front month silver is trading 17.630. Therefore, a single ounce of gold is worth about 70.3 ounce silver today. Since 2016, this ratio has stayed between 73 and 65, and well below the 82 highs from 2015. On political front, the market is anticipating more volatility ahead of Republican’s “repeal and replace efforts” of ACA. More important still, the US will be voting to raise its debt ceiling, and this US dollar negative decision could be supportive for precious metals. Gold is the currency of kings, silver is the coin of gentlemen, and debt is the shackle of slaves. Flight to safety in silver and gold might be on the horizon. The technical picture has May silver futures suggests continuation higher for a test of prior highs into the 18.50 area. Silver futures found a supportive Fibonacci zone between the 50% and 61.8%. Monthly and weekly charts suggest near term lows might already be in.

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.

May '17 Silver Daily Chart

May Silver Daily Chart

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Energies - Crude Oil

Will Continued Crude Inventory Builds Keep the Bears Alive?

Dan Hussey

Wednesday's EIA report saw yet another build in crude oil inventories, posting a 5 million barrel increase and renewing bears interests keeping the trade lower.  Without any market shaking new news out of the Middle East and OPEC nations, futures traders are left to digest what is quickly becoming an over supplied market, and renewed selling pressures are keeping the May 2017 futures solidly below the 50.00 handle.  Last week, I mentioned that once the market tested below this 50.00 figure, it would likely become resistance, and front month crude futures would need to get back above this figure to begin any short covering.  While below 50.00, I expect continuation to the downside, and a test of the supportive price band that should see a move to the 46.00 area.

Not much has changed on the technical picture for May crude futures.  Now that the market has broken below the 50.00 handle and the supportive price band just below the market, traders should expect bears to remain in control.  Watch for trend line resistance drawn against the short term highs over the last week, as well as the supportive trend line drawn against August and November lows (for May crude futures) which provided the market with an initial reaction higher off the 47.00 handle.  Continuing a series of lower lows and lower highs suggests the downtrend remains intact.  With the larger timeframe range between 60 and 40 – there is still room for crude bears to drive prices lower.

In my opinion, it will be incredibly important to remember the larger range the crude market has been trapped in, and that any moves inside of this range may simply be consolidation on a larger time-frame.  From a geopolitical perspective, the great fight over global energy prices continues.  While OPEC is trying to cut production (thereby trying to increase prices), the US is increasing its shale and rig counts (ramping up production) and offsetting the attempts by OPEC to support this market.  Keep an eye on where the benchmarks are, as there may be continued opportunity in spreading Brent / WTI / Gulf prices, with each microcosm in the oil market trying for its own agenda.

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.

May '17 Silver Daily Chart

May Crude Light 240 Chart

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Softs - Sugar

Sugar: Oversold and due for a bounce but the trend is down

Joe Nikruto

This week’s commentary finds a May sugar futures contract that remains under pressure.  Seven weeks of lower highs and lower lows has brought the May contract from 21.45 down to this week’s low of 17.02.  That is almost 5 full points off the price and a 55,000 contract decline in open interest.  Interestingly, non-commercial funds are still long over 100,000 sugar futures contracts. Stochastics point to a market that is well oversold and due for a bounce.  One wonders how much lower the market will have to trade to force the funds to capitulate and exit long positions.  Wire service reports point to ideas that the harvest in Brazil is going well. And, deservedly cane production is trumping Asian demand, for now.  Outside markets have not helped as the May crude contract and the May sugar contract have been traveling in tandem, virtually in one direction, lower.  I still suspect that the break is overdone.  However, no amount of suspicion is enough to counteract what you can see on the chart. The trend is down.

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

May Sugar Daily Chart

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Softs - Cocoa

Cocoa’s Next Leap

Hector Galvan

The cocoa market has finally sparked the interest of those that have been unsure about it for so many months.  Now, instead of people discarding the likelihood of a resurgence, they have become part of the movement taking prices higher.  So what exactly ignited this market?  In the past two weeks, we have seen a market unable to break the contract lows.  The contract low was tested three times since mid-February.  At the same time that cocoa began to move, the Pound sterling also made a move higher.  Lastly, one can argue that that the low price of cocoa has begun to rebuild physical purchases that will translate to better grinds in the future.

Technical analysis is vital to how one looks at the markets.  It is the road map for reading and following where a market has been and will likely go next.  Therefore, when one finds consistencies in a chart such as a top, a bottom, or a flag, it is important to investigate further.  In the case of cocoa, we find that it has been unable to muster a new contract low since mid-February.  Since then, 1880 has been a tough area for the market to trade under.  It began building a floor that one might say instilled confidence in the contract lows that might have been made.  In this case March 10 was our jumping off point, and so far the trend has held and continues to hold onto its gains.

Next, the British Pound has also aided the market in finding strength.  Cocoa is priced in Pound Sterling, so when the currency either succeeds or fails, it has a direct impact on the price of the commodity.  In this case, the Pound climbed from 121.38 to 125.60 in the last eight days.  As New York Cocoa is traded in dollars, the strong Pound has sustained the commodities trend. 

Finally, the argument that lower prices will and have stimulated purchases continues to play a large role in how I look at the market.  The cocoa grind numbers for the first quarter of 2017 will be published next month. The idea is that if we do see larger grind numbers, it will finally convince the trade that a move back to 2300 to 2500 is justified. 

Jul '17 Cocoa Daily Chart

July Cocoa Daily Chart

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Agriculture - Grains

Video - Daily Market Update - Grain Futures - 3/24/2017

Stephen Davis

We await next week’s planting report to see where the markets will go. Early predictions look promising as American agriculture continues to bring in business.

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

Will Higher Meat Prices Taint Consumer Demand this Spring/Summer?

Futures markets are pricing in the Brazil’s tainted meat probe announced last week. This news provides just another catalyst in an already bullish beef market. The USDA boxed beef cutout market reached its highest level yesterday since June 15. Further, front end supply remains relatively tight. The DailyLivestockReport.com today leading into Friday’s COF report estimated based on one projection...

“Using  the  average  of  analyst estimates…..as well as inventories and placements from  previous months we calculate that on March 1 the supply of +120 day cattle on feed  was 3.248      million head, 16.3% less than the same period a year ago.  In March 2012  this supply was well over 4 mil head and in March 2013 it was +3.7 million head.   Tight front end supplies and robust cutout values remain supportive of cattle prices.”

Packers are in the green, so strong production should continue to keep supplies tight and fed cattle cash prices firm. Recent cash prices range from 128-130 which is keeping the basis historically wide. Recent basis was over $17.00 vs the 5 year average of around $8-9. We’ll get a cash update from the Fed Cattle Exchange later today. Also, Cold Storage report is at 2 pm and the estimate is 521.7 million pounds of frozen beef. This report could potentially produce more of a market reaction than most as we move into seasonally lower prices this Summer.

Cattle on Feed is this Friday, and estimates are expecting lower YOY placements, higher YOY marketings, and close to unchanged cattle on feed. Some analysts think the placements number will be lower as a “pause” from the 700k YOY increase from Nov – Jan. However, high imports from Mexico and drought conditions in the plains might increase the YOY placements beyond expectations.

Fundamentally, the livestock production chain seems to be healthy and balanced, however, the larger issue is how higher prices will affect the consumer’s appetite. As noted, seasonals are bearish past Spring in the meat market but this is largely priced into June and beyond. Our weather in the next few weeks still supports beef demand.

Technically, RJO Market Insight identifies 106.725 and 103.15 in June futures as key S-T Risk and Risk points respectively to maintain a bullish stance. Dave’s idea last week to buy under 108.00 in June futures was narrowly missed.

As mentioned in several of my recent posts, the back months look cheap. The daily June chart (below) shows a strong value area 104-109 area and a projection higher if strength holds to the 116-120 area. Both of these areas are consistent with long-term technical areas visible on a monthly chart. The 104-105 area is a monthly washout area identified last blog and the 116-120 area was identified as the largest accumulation area over the past 6 years on a continuation chart.

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 June 2017 Daily

June Live Cattle Daily Chart

Live Cattle – June 2017 Daily Chart


June Live Cattle Daily Chart

Live Cattle Monthly Continuation

Live Cattle Monthly Chart

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Currencies

Video - Daily Market Update - Currency Futures - 3/24/2017

John Caruso

USD uncertain after Fed rate hike and dovish language from announcements, but the economy looks hot and should balance. Global currencies are looking positive throughout Europe as they prep for Brexit and changes with the Euro.

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

Will bond bounce burst?

Tarik Husseini

Treasuries have had a healthy rally, and interest rates have dipped following the FOMC meeting last week.  Although the Fed increased interest rates 25 basis points in a widely anticipated move, the market had braced for a more hawkish tone regarding future moves.  However, Fed projections didn’t budge much from the last meeting, and the closely watched “dot plot” that shows each member’s expectations for where rates will be in coming years didn’t move either.  What was a crowded short position in treasuries in the anticipation of a more hawkish Fed, has become markedly less crowded as traders didn’t get anything to propel the treasuries to another leg lower. So, short covering shot the treasury market higher, and follow through has sustained the rally for the past week. 

Yellen speaks on Thursday 3/23 at 8:45am.  Some participants are expecting her to clarify the Feds stance and possibly take a more hawkish tone.  However, with the stock market experiencing some turbulence in the last couple sessions due to concerns on Capitol Hill regarding Trump’s Health Care reform and accompanying tax breaks, she may stay ambiguous as to not further roil the markets.

Technically, bonds have rebounded further than anticipated, and are closing in on very solid resistance at the 152 level in the June 30yr bond.  That would be a natural place to get short exposure as the trend remains down in bonds.  Bonds are expected to pull back from resistance barring any large scale stock market correction.

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.

Jun '17 30-Year T-Bond Daily Chart

June 30yr Treasury Daily Chart

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Equities

Rising durable goods orders point to pick up in business spending

Greg Perlin

New orders for durable goods, a telltale sign for the U.S. economy, climbed in February for the second straight month.  Orders for durable goods advanced 1.7% while the increase in January was raised several notches to 2.3%, reflecting a pickup in manufacturing that kicked in toward the end of last year. 

Economists polled by Market Watch had forecast a 1.6% increase. The Dow Jones Industrial Average rose in Friday trades.  The increase in bookings last month was spearheaded by commercial aircraft, whose orders jumped almost 48%. That offset a nearly 1% drop in orders for new cars and trucks. If transportation is set aside, new orders for manufactured goods rose a smaller 0.4%, the Commerce Department reported Friday Pentagon orders were a drag.  Still, orders minus transportation have advanced for six straight months.  A key measure of business investment, meanwhile, fell slightly but it was just the first decline in five months. So-called core orders dipped 0.1%. 

Despite a drop in core orders in February, they have risen 2.7% in the past year. That's the second biggest gain in a 12-month span in three and a half years.  Business investment is one of three pegs that underpin the U.S. economy, but it's been underwhelming during the current expansion that began in mid-2009.  Surveys of executives at big and small companies alike suggest investment could pick up even faster soon on the hopes that a pro-business Trump administration fulfills its biggest goals. 

Even still, it's too early to tell if Republicans will succeed, especially given their difficulties in replacing Obamacare. The goods new is, business investment appears to have recovered from a slump that started in 2014 and persisted through the first half of 2016. Shipments of core capital goods jumped 1% in February. Shipments are fed into the government's formula for calculating gross domestic product, the official scorecard of the economy. That could give a boost to first-quarter GDP. 

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.

Jun '17 S&P E-mini Daily Chart

June Emini Daily Chart

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