May 19, 2017

Volume 11, Issue 20

Feature Article

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Metals - Gold

Has August Gold Finally Found its Footing?

Joshua Graves

August gold futures have seen much increased volatility over the past few trading sessions. We saw a $25 rally on the precious metal Wednesday following the recent turmoil in the Trump Administration. Investors flocked to gold and other safe haven assets, as the thought of an impeachment or presidential investigation seems like a possibility. Although highly unlikely, this was a reason for gold bulls to push the market higher. August gold formed what is known as a “golden cross” when a commodity crosses it’s 200 day moving average in a bullish manner. Fundamentally gold will still face headwinds if it expects to sustain this move. We have had fantastic jobless claims numbers here in the US, UK retail sales, and Philly Fed survey all posting better than expected. The other side to this argument is the still looming, and very real threat of a military conflict somewhere in the world, most likely North Korea. A second aircraft, the USS Ronald Reagan, has been dispatched to the Korean Peninsula. A full blown conflict would surely send gold soaring, and it’s in the back of everyone’s mind as a possibility in the coming months following another North Korean nuclear test.

Technically, gold has turned bullish. It’s trading above it’s 100, and 200 day moving averages. It’s also following a nice short term uptrend from May 11. A close beneath 1247 would trigger more selling, and a breakdown in the buying. The MACD has turned positive, indicating a buy signal. Look for a test of the 1247 trend line, followed by a test of the 38% retracement at 1238 if we do break this level. Gold bulls should have a target to sell following entry around 1250, at 1275. This represents fairly strong resistance overhead. 

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.

Aug '17 Gold Daily Chart

Jun '17 Gold Daily Chart

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Metals - Silver

Are We Heading to $16.00 in Silver?

Eli Tesfaye

July silver is trading $16.65, about 25 cents on the day. Again, per my previous articles, I have discussed the potential for this silver to find a technical bottom around $16.00. The relief rally from the recent lows has been met with formidable resistance. If the $16.00 level continues to hold, a close above $17.50 will solidify the near term lows. Therefore, I think it is too early to assume the bottoms are in near-term silver. Today’s pullback doesn’t help the bull camp.

From the fundamental perspective, silver market participants are still trying to gauge the possible outcome of Trump’s interference, with the ongoing investigation of his Russia ties and a possibility of any cover-ups surrounding that matter. This issue is far from being over, and at the moment, it is continuing to dominate the news. The bull camp in silver would have a hard time sustaining a rally out of Washington news unless a more solid story develops very soon.

The commitment of traders with options report for the week ending May 9 showed that the non-reportable and non-commercial position holding combined 71,091 contracts. Most likely, the May 16 reading, which would be released tomorrow May 19, 2017, will probably show a bump in holdings for the above group. Like I stated above, with the absence of real geopolitical risk, I’m not sure the bulls can substance this pop in silver price unless more bad news develops out of Washington.

From a technical perspective, nothing changed from what I mentioned last week:

“I’m getting less and less bearish as prices continue to decline into weekly support lines.” Frankly, $16.00 better hold or else more price pressure to the downside will happen as the result of discourage bulls abandoning the market. But then again, any sustained close above lows $17.00 will probably start a momentum run to the upside. It will set up a higher low against the December 2016 low signaling near-term lows.

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 Weekly Chart

Silver Weekly Chart

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Energies - Crude Oil

WTI Crude Extends Gains, But Are the Bulls Losing Steam?

Dan Hussey

With WTI Crude futures trading over $6 from their May lows (in the June contract), this rally has most traders wondering if this is the start of the next rally back to highs or is the market coming in on a short term top.  There is good backing for either scenario to play out, there is a clear line in the sand at the 50.85 price level, which in my opinion, and June crude should remain below to keep the market from testing its 55 handle highs.  50.85 is where there is both the 61.8% Fibonacci line as well as channel resistance come into play, and if the trade can push front month crude above that area, it could entice the market to run back to 55.

OPEC continues to make headlines, reiterating their rhetoric for continued production cuts which seem to be falling on deaf ears for the market.  It’s been months of the same headlines, and while the decreased supply from OPEC certainly helps support crude prices worldwide, one has to wonder how much longer they can go without chasing their production curve (lower prices mean you must sell more to make the same revenue stream).  This week’s EIA Petroleum Status report saw a draw of 1.8 million barrels from crude stocks, down from last week’s 5.2 million barrel draw, and is also helping give bulls their conviction in the most recent rally in crude prices.

From a technical perspective, June crude futures are heading into a key psychological level at the 50.00 handle, coupled with 50% Fibonacci resistance at 49.50 and trend line resistance drawn against prior lows.  In my prior article, I mentioned the 100% to 123.6% Fibonacci extension support, that sparked the rally back to test the broken trend line support (now being tested as resistance) into the 49 handle.  This bounce has come to fruition, and it’s now up to the bears to defend their levels.  While below 50.85, I expect June crude to continue lower, and test towards the 40.00 to 41.00 area (the low end of its trading range since August of 2016).  This is a proverbial moment of truth for the crude market, and there are plenty of catalysts for change to get things rolling.

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.

Jun '17 Crude Light Daily Chart

Jun '17 Crude Light Daily Chart

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Softs - Sugar

Short covering rally in sugar to end shortly, or new uptrend beginning?

Joe Nikruto

This week’s comment finds July sugar working hard to carve out a bottom. Price action from the last three trading sessions has taken July sugar up over the 18 day moving average, 15.77. In fact, the July contract has closed above the 18 day moving average TWO days in a row, first time since late February. Declining open interest and increasing volume along with our market breaking out of a rough looking cup with handle formation speak to a near term bottom for July sugar. Both strength in crude and the Brazilian currency are touted by analyst Hightower group as reasons to arrest the downtrend in the July sugar contract. Fundamentally, it is difficult to see how sugar could mount a rally on its own merits at this time. Oftentimes, the market will turn technically before the fundamental perceptions can change. This can make it wiser to trade what you see on the chart as opposed to waiting for the fundamentals to line up neatly. With the 18 day moving average at 15.77, any test of this area could be bought using 15.46 as a tight level to manage risk. Traders more committed to the long side could use a move to new lows, below 15.24 as a less tight but equally effective area to make sure they are not buried under a resumption of the downtrend.  

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.

Jul '17 Sugar Daily Chart

Jul '17 Sugar Daily Chart

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Softs - Cocoa

Broken Promises Boil Over the Cocoa Market

Hector Galvan

The battles in Ivory Coast over the lack of paid bonuses between regular army mutineers and Special Forces may have subsided, but the fear of further conflict is still spelled out in the cocoa market. Since the end of their Civil War in 2011, the current administration has enjoyed a relaxed atmosphere in which the largest worry is making sure they are consistent with the cocoa crops. However, this “Era of Good Feelings” that they have enjoyed was not more than window dressing over the fact that most of the nation is not happy with the government’s progress in making it a better place for all classes. Cocoa finished the day yesterday at 2086, up about 32 points. This is after the cease of hostilities came three days ago. I have covered the Ivory Coast and cocoa for many years, and understand the market's unwillingness to let down its guard. Money will only serve as a Band-Aid to a wound that continues to fester. The price of cocoa will likely need to return to 2300 to 2500 to aid the working class stay feed. Therefore, I continue to suggest that in the near term investors look for long term buying strategies that they can take advantage of in a market that has many surprises in its future. Long options have a great way of keeping ones risk defined and one in the market for a great deal of time. Furthermore, near term support and resistance come in at (2090 – 2155) and (1958-1996).

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.

Jul '17 Cocoa Daily Chart

Jul '17 Cocoa Daily Chart

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Agriculture - Grains

Surge in corn plantings now makes rain forecast lean bearish

Tony Cholly

The short term trend remains down, as planting progress was better than expected late last week and over the weekend. Warm and dry weather helped producers catch up on planting progress. The weekly progress report showed that 71% of the crop is planted compared to 47% last week and 73% last year. Traders expected 68% complete. The 10 year average for this time of the year is 69%. The Western corn belt saw significant progress over the seven days with Iowa 85% vs. 52% last week, Minnesota 84% vs 35%, Nebraska 78% vs 48%, SD 77% vs 32%, ND 58% vs 23%, and Wisconsin 48% vs 15%. Illinois saw little progress. Indiana, Michigan, and Ohio are still behind their 5 year averages. With technological advances, the producer has shown they only need a small window to make major advances. Farmers will welcome the warmer temperatures in the short-term, while traders should still be aware of longer-term issues. Any weather scares moving forward can still force a short term rally from all of the fund managers that still hold a very large net short position. December corn support is at 380.  

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.

Dec '17 Corn Daily Chart

Corn Daily Chart

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Agriculture - Livestock

Discount to Cash Supports Bounce

Jeff Gilfillan

The swift move higher from mid April to early May surprised and squeezed many speculators and hedgers. At the same time, the board provided healthy hedging opportunities despite the large difference between futures and cash.

Going into the late April spike, the tight front-end fed cattle market was clearly present. My blog on 03/22/17 referenced a statement from the DailyLivestockReport.com prior to the COF report for data as of March 1.

“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.”

The chart trend was clearly higher since October of 2016. Managed money had built a long position going into the tail end of a seasonally bullish time of year. Futures bounced off of previous highs in early April and bounced swiftly for 3 weeks into the LT value area in front month futures between 116-120 that I had mentioned in prior blogs.

At that point, a perfect storm of events (Trump/China, under-bought cash trade, gap lower US$ and gap higher US equity market) provided catalyst for the squeeze. Cash has not settled back much and presumably will remain firm while the large placements of feeders build weights back into the front end supply. With 2.5 billion of beef going to China and a weaker US$ this may take some time. While cash is this strong there is less incentive for the feedlots to rebuild and weights are decreasing.

Moving forward cash will be closely followed. Last week cash was trading 137-138. This large futures discount to cash makes it fundamentally difficult to sell the futures are this stage. Additionally, the charts bounced well off of the .382 and .500 retracement levels based on EOD charts in live cattle June futures. The charts are also in a “whipsaw range” of Dave Toth’s key levels in June futures at 114.425 and 126.875. Finally, one Elliott Wave interpretation I follow points towards the charts actively in a wave 4 move targeting new highs. Consider current prices to be in a trading range, but favor the long end.

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.

Oct '17 Feeder Cattle Daily Chart

Oct '17 Feeder Cattle Daily Chart

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Interest Rates

Bonds Batten the Hatches!

Tarik Husseini

Treasuries are ripping higher today as traders and investors look for safe harbor in what is becoming an increasingly turbulent political sea. The revelations that President Trump shared sensitive intelligence with Russia’s foreign minister, and that he may have asked FBI Director Comey to back off an investigation of ousted National Security Advisor Flynn, has eroded confidence in the administration’s ability to govern. Calls for impeachment are getting louder and more frequent. This puts into jeopardy the large fiscal stimulus plan that was expected in the early months of the Trump administration.

Selling Treasury bonds had been a logical position for traders betting that expansive fiscal policy, including lower taxes and large infrastructure spending, would lead to stronger economic growth and higher inflation, factors that reduce investors’ appetite for bonds. However, logic is thrown out the window when anomalies like possible impeachment enter the picture. During times of uncertainty, traders flock to quality, with US Treasuries being first on the list. Just today the odds that the Fed would raise short-term interest rates in its June 13-14 meeting have dumped from 74% to the 50% range, as uncertainty throws the Fed a curve ball. 

Currently, the June 30yr Bond is trading 153’24, which is up 2’05 on the day. That is the biggest up-move of the year, and looks to be at a one month closing high. Resistance comes in the form of a gap created from the 4/21 close and 4/24 reopen. That number is 153’30 as gap resistance. Barring an implosion of Trump’s presidency, the Fed should move in June to raise rates, with a follow up later in the year. This rally in bonds could be short lived if political tensions subside. But don’t count on it, word on the street is that FBI Director Comey will be testifying in front of Congress next week.

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 30yr Treasury Daily Chart

Jun '17 30yr Treasury Daily Chart

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Equities

US Stocks Trade Higher in the Midst of Washington Drama

Greg Perlin

U.S. stocks traded higher for a second session in a row Friday, helped by an abeyance in White House drama. However, the main indexes were still on track to finish the week lower. The S&P 500 index added 12 points, or 0.5%, to 2,378, with nine of its 11 main sectors trading higher. Technology and industrial sectors are leading the gains, up 0.6%. Higher oil prices helped lift energy shares.

The Dow Jones Industrial Average gained 77 points, or 0.4%, to 20,741. The Nasdaq Composite Index was up 37 points, or 0.5%, at 6,092. For the week, however, all three indexes are looking at losses of about 0.8%. Markets were rattled earlier this week, as investors were caught off guard by the sharp selloff on Wednesday after a report that President Trump asked then-FBI Director, James Comey, to stop an investigation into Russian interference into the U.S. election. Some investors have questioned whether Trump will even finish his term. Investors have increasingly questioned whether President Trump can deliver on his economic stimulus promises amid investigations. This week, political risk has caught up on the market, but it's still unclear whether it has any legs. Whether this latest bout of volatility lasts depends on what Mr. Comey really has uncovered, but there wasn't much new news to report on the story yesterday, which helped U.S. equities to recover. Observers said investors will be closely watching potential developments on the controversy next week. Lawmakers have asked the FBI to turn over the notes Comey said he made from his meetings with Trump by next week. A congressional hearing on the matter is due to take place, at which the former FBI head has been asked to testify.

Economic data and Fed speakers: Once again, there are few data points to distract investors from the political roller coaster. The first-quarter, advance-services report is due at 10 a.m. Eastern Time.

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.

Emini S&P 500 Daily Chart

Emini Daily Chart

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