July 14, 2017

Volume 11, Issue 28

Feature Article

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Metals - Gold

What’s Gold’s Next move?

Phillip Streible

Gold futures will continue to keep a data driven mindset that will have a spillover effect on the probability of the speed of another rate hike. Anticipation remains high for 1 more rate hike this year but the possibility of the FED zeroing in on winding down its $4.5 trillion portfolio of mortgage and treasure securities may play more of a significant role in direction. This is in effect is reverse quantitative easing. We should get further insight over the next few weeks when more significant data comes out.

Analysis and Outlook

The daily gold chart shows momentum indicator Stochastics in oversold territory and this is giving a cautionary bearish indication. ADX, which measures strength of the trend, has finally started to weaken indicating that the strength of the downward trend is starting to run out of steam. Gold needs to move back through $1240 and show some force back to the upside to get the bull party back started. Watch for a situation where gold consolidates at this level and becomes range bound until the next drop-off in the stock market or significantly weaker data out of this week’s economic reports. Pushes through the $1240 could indicate a move to $1300 which is the next level of psychological resistance. Caution should be taken if we see a close below 1200 where a washout could occur into uncharted territories.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or pstreible@rjofutures.com.

Gold chart 7/14/2017

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Energies - Crude Oil

Two Weeks, Two Draws: Do Crude Futures Care?

Dan Hussey

For the second week in a row, the EIA Petroleum status report estimated record drawdowns for crude inventories, shattering recent year’s seasonal comparisons.  Last week the report estimated a draw of 6.3 million barrels, which was compounded this week with another draw of 7.6million barrels, means that nearly 14 million barrels of inventories will need replenishing in just these last two weeks of trade.  It’s a bit shocking there hasn’t been more vocalization form OPEC and oil producing nations, in an attempt to accelerate the near term demand with continued supply cut rhetoric.  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 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 drawdowns in reserves form the last two weeks however may be what the bulls need to take back control, however the sideways price action since June in the WTI continuous contract suggests the wrestling match is still underway.

I discussed last week how breaking below the May 43.76 lows from the continuous contract was a very important level test.  The same set of technical indicators that were diving the market price action since last week, including two Fibonacci measurements, the lows from July of last year, and the channel the market has been holding the last 4 months.  The 44.00 support from equal legs and 50% fibs on the smaller timeframe charts, which I mentioned in last week’s article, is proving supportive and may be signaling the bulls are gaining back the ability to defend their ground.

Resistance for this week is expected into channel and Fibonacci confluence zone from 47.00 to 48.20.  If the market continues to break down below 45.00 then below the lows of July at 41.05 for the August contract, 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).  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.  Now that the market is above the 45.00 area, this opens the door for a test to channel resistance into the 47.20’s to 48.20’s.

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.

WTI Crude – Daily Continuous

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Softs - Sugar

October Sugar Futures Calls Don’t Expire Until September 15

Joe Nikruto

This week’s comment finds the October futures market with murky fundamentals.  The technical picture leaves me thinking this October contract could be at a crossroads.  It is likely that one way or another we won’t be seeing the current price level for much longer.  Hightower group suggests that if the lows do not hold this market could move into the 12’s quickly.   What one can see clearly looking at the COT charts is the commodity trading funds appear to be as a short as they have been in five years. And that’s because that is only as far back as the COT chart I had handy goes back.  It is likely we would need to see either more churn here at these price levels or upside extension that would allow price levels to be surmounted.  Violation of upside price targets will force funds to take profits and leave those contracts available to be resold should the market continue to erode. Awkward to say that the market would have to go higher to go lower but that could be exactly where we stand. At this point we have a rough ‘cup with handle’ pattern on the chart. The October contract is attempting to hold the 18 day moving average, 13.48 but the recent lows, 12.74 lurk nearby. I would be surprised to see this market make new lows quickly and easily.  That doesn’t mean it can’t happen. Whatever side of the coin you happen to land on the October contract could make for smart trading. If we hold the 18 day and start back toward the 50 day moving average, 14.67, long calls either out-right or via spreads will be the place to be. The October options don’t expire until September 15 so they offer plenty of time as well. 

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

Sugar Chart

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Softs - Cocoa

Is the Cocoa market done melting?

Hector Galvan

This week has been a solid one for the Cocoa market.  News from Ivory Coast and a market set on trying to test new technical levels has given us a good volatile week.  The tough question now is will this volatility continue into next week.  As I pen this story Cocoa is already down 40 points as we finish up the week in what I would describe as general profit taking.  News out of Ivory Coast this week describes a scene of chaos in the nations Cocoa infrastructure after heavy rains washed away the main arteries leading to shipping ports.  This significantly lead to worries that one would catch a log jam of Cocoa and helped push the price of Cocoa up to the highs of May.  Furthermore, the thought that Cocoa may spoil while waiting to go out of storage due to poor holding conditions have also help support prices.  Next, the market needs to good solid push and close above 2100.  If we cannot get that close it is going to be very difficult for the Bulls to maintain control of the market.  We have seen this both in May and now in June where the market gets close, but just is unable to make it past that crucial level.  I would argue that in time we will make it, but until then we all live with the insecurity of potential large drops in the market.   In the end, I would point to the swings the market has continued to have and ask that one imagine the opportunities in buying and selling those swings.  Furthermore, there are many long options strategies that can give one piece of mind in being a long term holder of Cocoa.

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.

Sep '17 Cocoa Daily Chart

cocoa chart 7-13

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Agriculture - Grains

Agriculture Outlook 7/14/2017

Stephen Davis

Good  Morning !The overnight CBOT trade has been mixed in another session of rather active volume. Lower prices were featured at the start of trading based on Thursday’s sharp price fall. With a recovery noted once the major weather forecasting models released their updates. The markets remain volatile amid changing weather forecasts. Thursday’s CBOT open interest data featured a 25 k contract decline in corn, a 12 k decline in soybeans, and a 3 k drop in Chicago wheat. This data confirms rumors that several large funds were exiting long CBOT positions

Certainly some damage has been done to chart patterns in the grain complex. And we can scotch the idea of recovering higher weekly closes after Thursday’s meltdown, however I would not give up on these markets yet. Next week they are still forecasting 4 plus days in the 90’s in the Iowa area before this area gets rain. The Corn Belt had better get the rain. The 6 to 10 day forecast has above normal temps for almost everybody in the Corn Belt and above normal precipitation for almost all of the Corn Belt with the exception of the Southern Corn Belt. This will be the critical rain for many corn farmers this summer would refer to these rain events as million dollar rains !This is one rain event that cannot be missed without causing trouble.

These markets rallied sharply to highs earlier this week on fund short covering motivated by hot dry forecasts The USDA re- confirmed that given estimated acreage that the balance sheets will remain well supplied with large carryouts. Crop yields are then the essential component to production and yields will need to come in below USDA baseline projections in order for carryovers to shrink. There is drought over a substantial portion of the Corn Belt. With a high pressure ridge moving around that has prevented a corn belt wide soaking rain needed to stabilize overall crop condition. Corn/soybean ratings should decline again Monday The forecast is still hot enough to cause crops some stress before these rains arrive. As noted these may well be the most important rains of the season for the corn crop.

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.

Dec '17 Corn Daily Chart

corn chart

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Agriculture - Livestock

Cattle Rallies Today on Higher Feed Supplies & Equities Rally

Higher feed costs, larger placements and marketings, historically high net fund longs, lower seasonal demand and “huge” beef production contributed to lower cattle futures prices over the last 30 days. As corrections often do, the charts retested the base of the initial rally back in late April in the 112-115 area in front-month fed cattle futures. As a consequence, RJO Market Insights’ Dave Toth pegged this area as a point on the charts that needs to hold to resurrect a downtrend that he mentioned maybe major in scope. To the upside, 127.65 is an area to watch on a long-term scale needed to break “to negate the major peak/reversal count.”

My value range in fed cattle (106-118 to 125-127) is still intact and I see little fundamentally for this LT value area to be breached anytime soon. There are several gaps to fill in front month fed cattle futures (119, 124.50 then 127.10). The shakout areas are 125 then 128.50 in LCQ7. In feeder cattle the sub 140 area and 135 areas are key supportive areas that maybe good lines in the sand for those looking to hedge a break below. To the upside, 152.70-153 then 161 areas in August FC are good areas of resistance and potential hedge points to consider triggering an entry.

The beef market is still long term bearish on the charts and possibly in the beginning of a corrective rally with many levels of gaps and value areas to retest. A sustained move higher beginning with today’s limit rally will only add to the funds historically high net long, provide incentive for feedlots and packers to move product and buyers to buy product. Hot weather will only contribute to this trend of increased production.

Hightower research noted today in their Daily Cattle Commentary…“Beef product in the third quarter is expected to reach a seven year high for that time of year. It is also expected to increase 415 million pounds from the second quarter, which is a record increase for that timeframe.”

There is obvious underlying demand in the beef market supporting this surge in production/supply. Exports were up 3.8% in May. This is a good market for hedgers on both sides of the trade. Have a plan and keep an eye on 108 in live cattle futures and 135 in feeder cattle futures as key underlying support.

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 TrackN’Trade

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Currencies

Currency Outlook 7/13/2017

John Caruso

In review of recent data points, last Friday (7/7), we saw a strong US Payrolls readout on Friday,  222K vs 170K exp; 4.4% rate vs 4.3% exp; wages 0.2% vs 0.3% exp.  If there was a weak spot in the report, it was wage growth, holding flat m/m at 0.2% and 2.5% y/y, also flat from May’s reading.  However, the Fed’s Labor Market Conditions Index did miss expectations the following morning (1.5 vs 1.8 exp and 2.3 prior) due to the softer/flat reading in wage growth.  This morning’s softer reading on y/y PPI (1.9% vs 2.4% prior), will perhaps set the tone for a softer reading on US Consumer Price Index (CPI) due out tomorrow morning.  Inflation data seems to have the Federal Reserve’s attention lately.  This was highlighted in Janet Yellens recent testimony to the House Financial Committee where she further expressed concern over the lower levels of inflation (dovish), however expects modest economic expansion over the next few years (neutral to hawkish).  The market reaction (SP500 +1.0%, while 10yr Yield dropped 5bps) was as if she pulled away from her recent hawkish rhetoric and pivoted back towards a more neutral to dovish stance.  As it’s widely expected that the Fed will raise interest rates 1 more time this year, the window for 2 more hikes is steadily closing.  The currency markets, specifically the USD vs EUR trade has largely been bearish immediate term trade and trend, however is likely approaching oversold territory.  We still expect softer readouts on inflation in the immediate future, which could continue to pressure the USD trade, however favor selling rallies in the immediate term until a “hard” bottom has been forged on the charts.  Inversely, we did see the Euro Currency flash immediate term overbought Tuesday afternoon with a quick breach of the 1.1500, however the bullish immediate term trade and trend is undeniable.  European economic data points have been strong ytd, and recommend actively managing the 1.1200 – 1.1500 trading range in the near-term. 

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.

Sept Euro Weekly Resistance Level (Note the black line expressing fairly sturdy resistance)

Currency Chart

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Equities

Analysis of Today's CPI Number

Greg Perlin

Consumer-price index no longer flashing bright red inflation signs.

The cost Americans pay for goods and services was little changed in June, larger reflecting lower gasoline prices but also showing that a recent surge in inflation has crested. The consumer-price index, or cost of living, was unchanged last month, the government said today Economists polled by Market Watch had forecast a 0.1% increase in CPI. More important, the rate of inflation over the past 12 months slowed to 1.6% in June from 1.9% in the prior month, and it is down from five-year high of 2.7% just five months ago.  Softer inflation has surprised the Federal Reserve and spawned renewed debate inside the bank about the timing of its next increase in a key short-term interest rate that influences the cost of borrowing. 

Most senior Fed officials had believed the slowdown in inflation was temporary, but now they have been forced to reassess their views. Although the Fed had been expected to raise rates once more this year, a closely followed Wall Street forecasting site now puts the odds at close to zero. On the basis of June's data, it is getting harder for the Fed to continue claiming that this is a temporary drop-off.  Nor is the economy growing quite as fast as the Fed had hoped. U.S. retail sales, for instance, fell in June for the second month in a row. In recent trading, the Dow Jones Industrial Average fell slightly, while Treasury yields tumbled.  Inside the report

In June, energy prices sank 1.6%. Americans paid less for gasoline, natural gas and electricity. The cost of food leveled off in June after five straight increases. Grocery prices have actually declined in the past year, but the cost of takeout and eating out has risen sharply, perhaps reflecting the impact of minimum wage increases in many states.  A stripped-down measure of inflation that excludes the volatile food and energy categories rose 0.1% in June. 

The cost of household staples such as shelter and medical care both increased in June, though the prices of both aren't rising as rapidly as they were earlier in the year. 

Over the past 12 months the so-called core CPI is up 1.7%, unchanged from the prior month. 

Adjusted for inflation, hourly wages for American workers advanced 0.2% in June. In the past year real hourly pay has risen just 0.8%, however.

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

E-mini S&P 500

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