June 30, 2017

Volume 11, Issue 26

Feature Article

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Trading Agricultural Futures

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Metals - Gold

Gold Market Seems Vulnerable to Some Selling Pressure

Tony Cholly

Outside markets were mixed overnight with gainers and losers distributed evenly around the globe. The Asian session started with updated readings on Japanese CPI, which were right on expectations, Japanese unemployment which rose to 3.1% and was above expectations of 2.8%, and finally the trade saw Japanese industrial production which fell back by 3.3%. The highlight from the global equity markets came from Chinese PMI that was expected to have a down-tick from May’s 51.2 reading but instead managed to jump to 51.7.

The trade clearly has to be disappointed with the performance of Gold (and all other metals this week), especially in the wake of the sharp declines in the dollar. Surely the metals markets are undermined as a result of the shifting central bank prospects, and it is also likely that the overall improvement of European economic sentiment is chasing weak-handed safe haven longs out of gold positions. Another issue that is undermining gold sentiment is the impending implementation of a tax in India, as that could curtail gold demand and that could also hold back the Indian economy.  With gold mining shares in South Africa declining sharply in the Thursday trading session off job cuts and concerns of mines playing out, gold as an investment vehicle has been dealt a short-term blow.  An issue that might apply some modest pressure to fold and silver prices this morning is bearish price forecasts from Bank of America.  In the end, with a choppy to sideways pattern in gold since June 15 and prices generally carving out a series of lower highs, the bear camp would appear to have an edge.  In fact, failure to hold 1239 in August sets the stage for a poor weekly close.

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.

Aug '17 Gold Daily Chart

Aug '17 Gold Daily Chart

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Metals - Silver

No Shine for Silver

Eli Tesfaye

Sept silver is trading $16.55 down less than a cent. It was disappointing to see the lack luster price action in silver even with a sharp decline in the US Dollar this week. The weekly chart below shows the pin bars. Usually, when I see chart pattern like the one below, it is a sign that selling pressure is waning. This afternoon the government will release their Commitment of Traders with Options Report. The non-commercial and non-reportable combined held net long of 59,176 contract. Most probably this number will increase from this Tuesday reading.

From technical prospective, trade looks like it has a bit of support. As I have stated before, weakness in silver could be forgiven provided it continue to hold above $16.00 in September contract. Market will probably will not see any interest unless we get a break above low $17.00. Any sustained close above lows at $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

Can this be the turn WTI Crude bulls have been waiting for?

August WTI crude oil futures are testing the 45.00 handle resistance in today’s trading with the market brushing off the bearish EIA status report from Wednesday. In what has been over a $3.00 rally in front month crude prices (from the June lows), the EIA status report’s miss of forecasts for a 2.1 million barrel draw, and instead estimating a 0.1 million barrel build in inventories, has been completely brushed off by the market. While prices remain below the 45.00 resistance zone, I noted in last week’s article, that the path of least resistance is likely still lower towards a test of the 40.50 Fibonacci and technical confluence area in the continuous daily contract.

At this point, it would appear the market has also lost faith in OPEC’s ability to control supplies, as the cartels headlines are barely events anymore. As I have said before, talk is cheap, and while OPEC cuts have been made a reality, it’s clearly not enough of a consensus to empower the bulls. The continued talk and production of US shale has been out pacing the OPEC efforts to cut production, at least in the minds of traders and the market. The recent rally off the 42.00 level appears to be more profit taking than longs initiating long term positions, and it’s possible that there will be more participation from lower prices.

From a technical perspective, breaking below the May 43.76 lows from the continuous contract is massively significant. I discussed last week the same set of technical indicators that are driving the market lower, including two Fibonacci measurements, the lows from July of last year, and the channel the market has been holding the last 4 months. WTI crude futures should find a support level where there is a confluence of Fibonacci support bands (retracements and extensions) between 40.65 and 37.20 (daily continuous chart below). There is also a declining price channel, formed from the trend line against the 53.76 and 52.00 highs, and the trend line against the 47.09 and 43.76 lows. I expect the extension of this trend line support, which crosses the 50% Fibonacci retracement and 100% Fibonacci extension at the 40.65 area, to be tested and support the market in the near to medium term. Resistance comes in at the 45.00 area, but above 45.00 opens the door for a test to channel resistance into the 47.20’s. The only question we have to answer with crude: is just how high will this dead cat bounce?

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 Continues Chart

Crude Light Daily Continuous Chart

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Softs - Sugar

How low can October sugar go?

Joe Nikruto

This week’s comment on the October sugar futures contract finds a market continuing to press for new lows. On the chart we see yet another weekly low shaping up. Wire services are reminding us that should the “risk off” attitude spread from equities to commodities, sugar is one of the markets that could see dramatic short covering. I’m not too bullish on that idea, as typically commodity trading funds need technical levels to be reached or breached for action to result. For funds to start covering short positions we would likely need to see the October contract trade above 13.93 and 15.55. That is not to say a relief rally isn’t possible as indicators show the market is well oversold. For any sustained rally to take place we would first have to at least close over the 18-day moving average, 16.03. The commodity trading funds are relatively more short than they have been in a long time. Same goes for the commercial trader on the other side of the coin - very long. Interestingly, the commodity trading fund category, where risk is accepted in pursuit of potential profit, is getting shorter on declining open interest. This could point to a downtrend in October sugar futures that is getting tired or beginning to lose momentum. We could place more stock in this idea if the price action on the chart didn’t resemble a hot knife through butter on the way to yet another new weekly low. One thing that did jump out at me from the wires this morning, I think it was the Hightower group pointing to a bank comment about sugar being below the cost of production. Sugar producers, much like cattle feeders will not let a little thing like low prices slow them down. But, sooner or later the economics will assert themselves and prices will have to go back up or at least stop dropping like a rock. Could owning calls be a good idea to take advantage of a relief rally? Looking at the chart, however, makes that seem like a questionable move and even the most aggressive of traders can wait at least until we see a close above the 18-day moving average to make a decision.

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.

Oct '17 Sugar Daily Chart

Oct '17 Sugar Daily Chart

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Softs - Cocoa

Cocoa Dropping, Looking for a Bounce

Cocoa futures dropped this past week as concerns over a cocoa glut resurfaced the prior week and invigorated an already large base of short sellers to stay bearish. Cocoa has struggled to move higher with an expected surplus of beans, along with sluggish growth in demand. The previous week, managed money sold 2,984 lots, to a net short position of 29,703 lots, according to the Commitment of Traders Report.

Last month, the International Cocoa Organization raised its forecast for the 2016-17 growing season, indicating a surplus of 382,000 tons versus a previous estimate of 264,000 tons, as supplies of beans swell in Ivory Coast, the world's largest grower. In the latest report, the ICCO increased its forecast for global production in 2016/2017 by 140,000 tons to a record 4.69 million, up 18.1% from the previous season. The increases were expected to largely come from Ghana and Ivory Coast.

The cocoa crop grows from trees that are planted on cocoa farms. Unlike soybeans and corn, farmers can not change what they plant each year because the cocoa trees continue to produce cocoa as long as the weather does not impact its ability to produce new crop. This makes the supply side less sensitive to price changes for the tree crops.

The fundamentals are starting to become overdone to the downside in my opinion, which signals a strong technical bounce is what traders should be looking for.  The historical cocoa charts provide a good picture of the support in the current price range that should carry the market up higher. The weekly chart has too much red to continue the pushing the market lower in the near term.  Technical traders should look to buy while the market is overdone to the downside.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-536-8558 or thaberkorn@rjofutures.com

Cocoa Monthly Chart

Monthly Cocoa Chart

Cocoa Weekly Chart

Weekly Cocoa Chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 6/30/2017

Stephen Davis

Steve discusses the possibilities of the grain markets leading up to the USDA Acreage 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

Placements and Marketings Rise – Managed Funds Net Position Shrinks

Last week’s Cattle on Feed report continued to show cattle on feed growing, and placements and marketings on the rise. Packers have good margins and have room to discount going into the seasonal demand break. Retailers are adjusting by selling smaller portions to reduce sticker shock.

COT report still showed a near record long after hitting the record the previous week in the non-commercials. Cash has retreated down to 118-120 after trading last week in the lower 120s. I had forecasted futures and cash meeting in the upper 120s going into June expiration in the fed cattle but the seasonals pressured the cash lower than I anticipated.

The recent double top on the weekly charts pose a technical challenge for the markets. There is apparent underlying demand that is eating up the high slaughter and feedlots continue to be current. Until the front end supply at the feedlots show signs of building, expect good value support on fed cattle from 106-118 and overhead resistance around 125-127. Feeder cattle futures should see good support at 135 and resistance around 152.

There is still opportunity to protect a test of the Spring ranges with Oct. puts in feeders.

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 Weekly Chart

Live Cattle Weekly Chart

Source: Track N' Trade

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Daily Market Update - Currencies - 6/30/2017

John Caruso

John discusses the market after some big moves in the USD. Can the dollar bounce back?

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

Bond Rally Dissipates

The bond rally that was sparked following the last FOMC meeting, which was construed as being dovish, has dissipated over the last three sessions. A steep sell-off in Treasury bonds that was sparked early Tuesday morning by ECB President Mario Draghi, continues today. Draghi hinted that the factors suppressing inflation would diminish, and consequently European policy makers would wind down their quantitative easing program by the end of the year.  European Government bonds dumped on the news, and US Treasuries followed suit. It is widely expected that the Fed will raise US interest rates one more time this year. With central banks in the US and abroad showing confidence in their respective economies, and an intention to stave off inflation before it perks up, the fundamental picture looks bearish for bonds. 

The technical picture shows support in the September 30yr at its current level, a band between 153’16 and 154’00. I would expect an initial bounce here, possibly up to 155’00. However, the initial downside target looks to be around 149’00 over the coming months. 

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.

Sep '17 30-Yr Treasury Bond 60-min Chart

30-yr Treasury Bond 60-min Chart

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Modest Gains in US Stock Futures Conflict with Fed Predictions

Greg Perlin

U.S. stock futures on Friday were hanging on to modest gains after data on spending and consumer inflation came in weaker than expected, with investors looking to close out a volatile week that could signal the reemergence of sharp moves on Wall Street. In data, spending in May was barely higher, as Americans chose to save more money instead. Meanwhile, consumer inflation also slowed, conflicting with the Federal Reserve's assessment of transitory sluggishness in prices.

Dow Jones Industrial Average futures rose 35 points, or 0.1%, to 21,290, and S&P 500 futures tacked on 3 points, or 0.2%, at 2,423.00. Nasdaq-100 futures were down 6 points, or 0.1%, at 5,647. The indicated gains would come after the S&P 500 and Dow industrials on Thursday suffered their worst one-day declines since May, hurt by another selloff in technology stocks that more than outweighed a climb for financial shares (XLF).

The S&P 500 stumbled lower by 20.99 points, or 0.9%, to finish at 2,419.70, while the Dow Jones Industrial Average fell 167.58 points, or 0.8%, to close at 21,287.03. The tech-heavy Nasdaq Composite Index sank 90 points, or 1.4%, to end at 6,144.35. It has been a tough week for the FANG Facebook, Apple, Netflix and Google stocks with their prices falling between 3% and 6% since Monday.

Stocks this week were buffeted by central banks, as bond yields rose and the dollar fell on comments from central bankers signaling a potential receding of easy-monetary policy. Investors repriced expectations for the European Central Bank and the Bank of England to begin embarking on withdrawing monetary stimulus. But Wall Street's main benchmarks were still on track to post gains for the second quarter, which ends Friday. The session will also mark the close of trading for the week, the month of June and the first half of the year. I am cautiously optimistic on the outlook for U.S. equities, but S&P 500 earnings growth expectations already look high and are unlikely to be revised higher, unless there is progress with fiscal stimulus domestically or global growth continues to surprise on the upside. Next week, equity trading will be shortened by the Independence Day holiday on Tuesday.

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

Sep '17 E-mini S&P 500 Daily Chart

 Emini S&P 500 Daily Chart

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