April 7, 2017

Volume 11, Issue 14

Feature Article

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Metals - Gold

June Gold Trade, $1300 Gold Coming Soon?

Joshua Graves

June gold has seen quite the rally since the Mid-March 1200 lows. We have recently seen gold spike to new relative highs we have not seen since the election back in November. The US Military recently launched missiles targeting a Syrian airbase that launched this week’s chemical attack, and is currently up $17. Gold has now moved through the 200-day moving average and needs a close above 1265 to turn the longer term trend higher. Gold will likely see resistance at 1275, which corresponds with congestion back in October. If we manage to clear this hurdle a run to 1320 is not out of the question. There is currently a risk off mentality given the uncertainty surrounding conflict in the Middle East, the ability to pass significant tax reform in a timely manner, and recent economic data this morning showing a large drop in non-farm payrolls well below expectations. If this economic data continues to come in below expectations, or has any hint of not being “stellar” you could continue to see a build in gold.

If you look at this from a technical standpoint. The market is in a clear bull direction. The MACD has crossed indicating a buy signal on March 20. We are marching toward overbought territory at this point, and it will take more bullish news regarding conflict or poor economic data to put this market into a sustainable rally. At this point 1250 becomes excellent support, and traders should use this level to structure option strategies with 1225 becoming the next level of support beneath that. 

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.

Jun '17 Gold Daily Chart

June Gold Daily Chart

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Metals - Silver

Is Silver Getting Toppy?

Eli Tesfaye

May silver is trading $18.240 up about 5 cents on the day. Before, I discussed the potential for momentum to move to the upside in the $18.500 range. Per my previous article, upside target seem fulfilled. For now, unless we get a blowout type of price action i.e. rally above $18.50, trades looks to go from sideways to a lower type of price action.

In world news, Chinese Xi is visiting the US today, and we will see what type of confrontation on trade and North Korean issues will occur between Trump and Xi. The Chinese may make concessions to counter currency manipulation charges. Of course, in the end, would any agreement create an inflation environment in the US and Chinese futures? What about infrastructure initiatives in both countries? 

For now at least, silver is taking a bit of a breather. Weakness in silver should be seen as an opportunity to be bought rather than sold. A brief sell-off yesterday after a strong ADP report had some trades tilting bearish on silver. 

The technical picture has May silver futures looking sideways to lower price action near term. Low to mid $17.00 range will probably provide some opportunities. Of course, a close above 18.50 will ignite momentum price action.

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.

Silver Daily Continuation Chart

Silver Daily Chart

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Energies - Crude Oil

If crude goes up, must it come down?

Dan Hussey

The bears continue to find their fuel from Wednesdays EIA Petroleum Status Report which saw an additional 1.6 million barrel build in inventories.  This last week’s price action for May ‘17 crude oil futures continued to respect the lows from March at 47.01, and have rallied to highs of April into 51.88.  This short covering rally, against the prevailing growth in crude oil inventories (fundamentally bearish), may be nothing more than a corrective bounce for oil futures in the near term.  It will be important for traders to utilize key trend following techniques, as well as prior technical level, which together can help to identify the next opportunity to hop in on crude’s resulting move.

On the technical side, May ’17 crude oil futures have traded higher and right into some key levels of potential resistance.  These inflection zones might produce an opportunity for bears to defend some key levels which the bulls failed to hold earlier this year.  This type of “broken support now resistance” is one of my personal favorite means to produce trade setups, because they intrinsically rely on prior market participation to prove their value.  For the first 3 months of 2017, crude futures consolidated in a much respected 52.00 (approx.) lows to 57.00 highs.  While this range compressed, the 52.00 lows of that range held against every inventory build, for months on end.  The market couldn’t support the fundamental weight of all the crude sitting in tankers and silos across the world, and eventually price collapsed below those lows through March and into April.  The market has now chosen to test that broken 52.00 support, coupled with the 50% Fibonacci inflection zone at 52.13, may offer formidable resistance while below 53.33 61.8% line.

In my opinion, the supportive trend line drawn from August lows to November lows (in the continuous contract), comes in at 47.00, and while above that trend line May ’17 crude futures do have the chance to rally.  The fundamental picture has shown a slowdown in the rising crude inventories, which is likely a reason for the short covering in the near term.  It will also be important to remember the larger weekly range of 40-60 in crude, which has been respected for some time now.  This puts crude likely heading lower in this larger timeframe range, which gives room for move to fresh lows through the March lows of the current front month futures.  The market will know if this resistance from 52.00 to 52.20 gets respected, the path of least resistance is down, but failure of bears and a push back to 53.00 could change that dynamic entirely.

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 Continues Chart

Crude Light 240 Chart

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Softs - Sugar

Fund traders still long in sugar, get punished or discounted fundamentals lead to bounce

Joe Nikruto

This week’s comment finds the May sugar futures contract continuing its downward slide.  Negative fundamentals that are well discounted and an oversold, the chart should be conspiring to provide the May sugar futures at least a chance to bounce.  However, this morning’s early bounce was met with selling that didn’t let up for the whole session.  After rallying 30 points early the best the May contract could do was a 10 tick loss on the day.  One fundamental that isn’t getting that much traction from the usual outlets is China’s decision to make available for export large quantities of High Fructose Corn Syrup.  While China will continue to import sugar, they will be turning some of their large stock piles of corn into sweetener and selling it to trading partners in Asia.  This could have an impact on the amount of sugar imported into these countries.  News from the soft drink world in the last few days suggests yet another replacement for sugar in the pipeline.  Coca-Cola and Cargill are partnering with a European “food ingredient” company to bring a Stevia derived sweetener to market in the next year.  While not a soft drink expert by any measure, my opinion is that even though most US soft drinks are sweetened with HFCS, an effective low or zero calorie sweetener in soft drinks could speak to sea change in the processed food space. Technically, it is hard to say where the bottom is.  Interestingly, the fund trader category is still long as of the last reporting, near 100k contracts.  This seems like a lot of contracts holding out on the long side in relation to the relentless downward move we have seen in the May contract.  Will the market force the fund trader to capitulate with another leg lower?  The commercial category of trader is increasingly less short and it will be interesting to see how much lower the May contract could have to go to find willing buyers.  Certainly, the May sugar futures contract is oversold and due for a bounce.  But, the trend is down and the funds are still long.  Hard to view that as a bullish circumstance.

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 Market May Become Too Bitter for Investors

Hector Galvan

Cocoa futures have remained a bit softer into the end of the week, with a general flight to safety of the US Dollar leading to the market trading to its lows for April.  With May ’17 cocoa futures attempting to build a base above the 2100 handle, it will be imperative for the trade to watch what could be a 2200-2100 range in the near term.  Financing concerns for the major West African producers have been dominating headlines recently, even though a decline in supply concerns have muted the rally form the past few weeks. 

The International Monetary Fund will continue to provide support, assisting with the lack of financing cocoa producers in the Ivory Coast have had issues with lately.  With the IMF’s funding, unless there is a major weather event development, it seems global supplies will remain well stocked and in a surplus.  The latest commitment of traders report showed a net speculative short positing in cocoa futures, and that is expected to continue to build in the near term.  Market consensus has yet to hit any extremes in the COT data, and this will be an important data point to consider if there is a longer term base forming.

On a technical perspective, and with the continuation of the US Dollar rally after both the US strike in Syria and the latest NFP report, cocoa remains in a technical range between 2100 and 2200.  A break below the 2100 handle, and a sustained daily close, will likely lead to continued declines and a test of the 2000 psychological support.  A break above the 2200, opens the door for bulls to the 2350-2400 area, where the next major cluster of resistance levels lies.  It’s a range until it fails, but with the current geopolitical climate and general uptick in volatility, when this range does break cocoa will likely be due for a move.

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

July Cocoa Daily Chart

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Agriculture - Grains

Video - Daily Market Update - Grain Futures - 4/7/2017

Stephen Davis

Grains are in good support, they should remain consistent until planting begins.

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

June Discount to Cash and Techs Supporting Fed Cattle

June live cattle futures are trading at about $18 discount to cash, and the ten-year average is about $10 per Hightower Research’s morning comments. Cash is waning early this week, but slaughter is active and feedlots are current. There is still good movement and good chart support in June cattle around 108.50 (50% EOD FIB 2017) which held today (04/05).

Technically, RJO Market Insights identifies 108.75 and 104.275 in June futures as key S-T Risk and Risk points respectively to maintain a bullish stance.

I have been mentioning in several of my recent posts that the back months look cheap. They still do, relative to cash, so I believe the past and current opportunities are in both inter-commodity spreads and calendar spreads. 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 on a past blog, and the 116-120 area was identified as the largest accumulation area over the past 6 years on a continuation chart. Some EW interpretations point to an intermediate move under 100 which is a stretch.

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.

Jun '17 Live Cattle

June Live Cattle Daily Chart

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Currencies

We expect a USD flare to the upside that fails to hold

Tony Cholly

Dollar:  At least to start today the dollar appears to be catching a safe haven bid but not as large of a safe haven bid as the Yen.  While we understand the potential undermine of the USD as result of its military actions overnight it looks to generally be in vogue because of the potential for payroll gains that denote ongoing recovery.  However, in order to breach the 101 level today probably requires a nonfarm payroll gain above 190,000.  In other words, the number today has to be strong enough to spark realistic talk of a near term interest rate hike.  On the other hand, in the face of generally hawkish news from a fed member earlier this week, the inability to sustain gains on Wednesday that would seem to make the 101 level fairly solid resistance.

June Dollar Index Daily

 

Euro: An extending pattern of lower lows on the euro chart combined with initial preference for this week’s lows in the early going leaves the bear camp in control.  In fact the failure to see the euro temporarily benefit from German industrial production readings and from a slightly better than expected French industrial output reading highlights an ongoing negative fundamental condition in the euro.  The bear camp will suggest that French industrial output was contractionary, even if that reading was not as bad as expected.  While we think the dollar will be unable to hold large gains today it is difficult to rule out the prospect of a probe down to 106 in the June euro over the coming week.

June Dollar Index Daily

 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or tcholly@rjofutures.com.

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Equities

Messy Jobs Report Still Not Considered Bad Signal

Greg Perlin

The weaker-than-expected headline from the March jobs report will not deter the Federal Reserve from raising short-term interest rates twice more this year, economists said.  The March data won't knock them off course, even though the U.S. created just 98,000 new jobs in March. Even though job growth slumped in March, many economists say the data is not a signal that the U.S. economy is falling out of bed. I'd be really surprised if the Fed takes this as a signal that something bad is going on. For one thing, it would be unusual for the labor market to get substantially worse without first seeing hints in the weekly jobless claims data, which have been very strong lately. Another good sign is the unemployment rate fell to 4.5% from 4.7%, the lowest rate since May 2007. A 4.5% unemployment rate is at the bottom of most estimates of where most economists think the jobless rate could sit without generating inflation. The Fed has clearly been successful in bringing unemployment down to full employment. It will encourage the central bank to modestly increase short-term rates. The central bank will now turn its attention to inflation data. The pace of rate hikes will depend on if there is any acceleration in prices. My forecast is for the next hike in June. Prior to the report, Minneapolis Fed President Neel Kashkari said he would be watching the March unemployment rate closely. A further drop in the unemployment rate might change his mind about the central bank holding off on raising interest rates, he said in an interview with Bloomberg TV. Kashkari was the lone dissent against the rate hike last month.

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 E-mini S&P 500 Index Daily Chart

June Emini Daily Chart

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