August 25, 2017

Volume 11, Issue 34

Feature Article

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Metals - Gold

Bulls Gain an Edge Moving into a Volatile Day of the Week for Silver & Gold

Manon Lasserre

Metals on Thursday settled mixed with Sep silver at a 1-week low and Sep copper at a new 2-3/4 nearest futures high: Dec gold -2.7 (-0.21%), Sep silver -0.083 (-0.49%), and Sep copper +0.0535 (+1.79%). Bearish factors included (1) a stronger dollar, and (2) long liquidation in precious metals ahead of Fed Chair Yellen’s speech Friday in Jackson Hole, WY. Copper rallied as signs of tighter supplies fueled fund by buying after LME copper inventories fell -4,475 MT to 245,050 MT, a 1-3/4 month low.

While the silver and gold bull camp could expect to be disappointed by lack of strength in gold this week as the fear of US government shutdown looms over us, the December gold contract has actually seen its consolidation pattern tighten and prices would appear to be coiling and poised for a distinct directional move higher today. In retrospect, US scheduled data remains mixed which would seem to reduce the prospect of definitively hawkish dialogue from the US Fed at the Jackson Hole Wyoming symposium today.

MARKET IDEAS: As previously indicated, the coiling action in gold and silver markets seems to beg for a definitive price reaction today. While the December gold charts remain bullish from a classic chart perspective, the September silver chart on the other hand is showing some breakdown in the coiling pattern with a temporary decline to the lowest price level since August 16. Uptrend channel support in December gold is seen at $1,285.50 and a move above the $1,300 level is probably a necessary target for the bull camp to maintain control. Uptrend channel support in September silver today is seen at $1676 and a potential necessary upside targeting for the bull camp is seen up at $17.11.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-1120 or mlasserre@rjofutures.com.

Dec '17 Gold Daily Chart

Dec '17 Gold Daily Chart

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Metals - Silver

Silver Waiting for Direction from Draghi and Yellen

Eli Tesfaye

September silver is trading $16.98 UP about 1 cent on the day. Metals are strong across the board. The annual Fed meeting in Jackson Hole, Wyoming is underway. As I write, Draghi and Yellen are anticipated to make speeches. In my view, these speeches are market movers. Markets have been anticipating the Fed’s long term outlook on the US economy rather than what the next rate hike would be.

Geopolitical risk around North Korea seems to be subsiding this week, but the Trump Administration is considering more sanctions on Russia and China over in action on DPRK. There is plenty of uncertainty that seems to be helping silver, even in light of US dollar strength.

From a technical prospective, silver is poised for a breakout. Silver charts are showing more and more consolidation in terms of price action. As I have stated in previous FuturesCasts, if silver works itself through the $17.00 price action, it would more likely attract momentum buying.

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.

Sep '17 Silver Daily Chart

Sep '17 Silver Daily Chart

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Energies - Crude Oil

Crude Oil's Resistance is Tested, is this the Calm Before the Storm?

Dan Hussey

In now the eighth straight week of crude inventory draws, Wednesdays EIA Petroleum status report estimated stockpiles had declined by 3.3 million barrels.  While a +3 million barrel draw is a significant consumption of oil, this week’s report is a less than half of last week’s 8.9 million barrel draw, and might be an early indication of tapered demand.  Gasoline inventories also estimated a draw of 1.2 million barrels, which was an uptick for gas consumption when compared to last weeks no change.  Crude being consumed by refiners to replenish the draws in gasoline stockpiles is to be expected, and watching production margins will be a key fundamental factor in coming weeks.

The same set of technical indicators that have been driving the market price over the last few weeks, including two Fibonacci measurements, the lows from July of last year, and the channel the market has been holding the last 4 months are still very much in play.  The 44.00 support from equal legs and 50% fibs on the smaller timeframe charts, which I mentioned in last few week’s articles, is proving supportive and may be signaling the bulls are gaining back the ability to defend their ground on the larger time frame. However, now that front month crude prices have failed to break above the 50.00 handle, the bears have a line in the sand to defend, and a short term high that will keep the market suppressed.  Last week’s rejection of the 50 handle, and the subsequent decline to test the lows of August (48.37 September contract) could be the key reversal and outside day the market is looking for to confirm a short term top (as was mentioned last week).

Resistance for this week is being tested into channel and Fibonacci confluence zone into the 49.00 to 50.00 handle.  There is an equal legs measurement at 48.80 (which extends to the 123.6% line at 50.00), and this level aligns with channel trend line resistance.  Support is likely to be found into the 50% Fibonacci retracement area from the lows of July to the highs of August, measured at 46.24.  While WTI front month crude can remain solidly above 46.00 it’s likely that bulls will see this as an opportunity to defend the market from testing the summer time lows.  In the medium to long term, 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).  Not much has changed in the last few weeks, and the broken record for WTI continues to spin… in my opinion, it is all the calm before a storm.

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 Continuous Chart

Crude Light Daily Continuous Chart

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Softs - Sugar

Battle Line is Drawn in Sugar

Joe Nikruto

This week’s comment finds the October sugar futures carving out a 5-day retracement of the recent two week down draft. That move lower took the price of the October sugar from a swing high of 15.16 all the way down to 12.92, 18 points from the recent low, 12.74.  Technical measures are bouncing from oversold levels giving some room for the market to head lower again should the 50-day moving average, 13.78, prove to be too stiff of resistance for the October sugar contract to surmount.  Next few day’s price action should be at least instructive even with the dog days of summer upon us.  Volume has been sufficient and traders seem to be active in the soft commodities even though prices are, according to many commentators, depressed. 

The commercial trader is less short (actually slightly long) than she has been in the last 5 years, maybe more.  Like we had expressed in our last comment the funds have increased their short exposure, to about 109,000 contracts as of the last report.  This recent move could show, again, the funds being forced to cover short positions.  Normally in low volume environments fund short covering can be responsible for moving markets well away from areas of value.  But volume has been decent and it won’t surprise me to see that the funds have decreased their short position by about 20-30k contracts.  This move puts the funds back in a position to press the short side should the October contract be unable to move convincingly above the 50-day.  If the 50 day gives way and we find October sugar trading above 13.78, the short covering fire that could result may signal an impending change in trend.  It is important to note that while the technical action can lead the awareness of changing fundamentals by days and weeks the technical action itself cannot change the fundamentals.  An important distinction for those of us who would use the COT as a set up for potential trades. The large participants can have an extreme position for longer than we can maintain enough risk capital to stay in the game.  With the fundamentals being well known and well-worn I am looking toward call options to position for a possible continuation of the short covering rally we have seen the last 5 days. With the possibility that there could be significant acceleration to the upside it might be wise to look for long exposure via October calls. They don’t expire until September 15. The move that position anticipates will have resolved itself one way or another by then.

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

Will the Cocoa Bean Bounce

Hector Galvan

It has been a tough week for cocoa traders.  The market is crawling back after taking another dive from what I would argue is an important breakout point.  In speaking to some people I get the impression that many are at the point of giving up on the market.  However, I would preach patience to those who have given this market time.  There are no sure things in trading, but the way cocoa has been trading I would imagine that we may have another shot at trying to test its five month resistance level of 2100.  One catalyst that may improve the odds that we move back towards resistance is the continued news that the crop in Ivory Coast that usually starts in September may not get under way until October.  In addition, although it is expected to be a good crop it will be smaller than last year's.  This is likely due to many farmers walking away from cocoa on its lack of appeal.  Its value has dropped off significantly from last year when we were trading around 2700.  In my opinion, the best road to take at the moment is looking at strategies that take advantage of a bounce back to 2100 and beyond.

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.

Dec '17 Cocoa Daily Chart

Dec '17 Cocoa Daily Chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 8/25/2017

Stephen Davis

The most recent corn report didn't come in as expected. What will a bottom in the market tell us?

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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Currencies

Cable Correction Intact Below New Minimum Bear Risk of 1.2917



Tuesday's resumed weakness below the past week's 1.2842-area support reaffirms our broader correction count introduced in 04-Aug's Technical Blog and leaves yesterday's 1.2917 high in its wake as the latest smaller-degree corrective high and new short-term risk parameter the market is required to sustain losses below to maintain a more immediate bearish count. Former 1.2850-area support is considered new near-term resistance ahead of further and possibly extensive losses.

The daily chart shows the market closing in on the (1.2778) 38.2% retrace of Jan-Aug's 1.1988 - 1.3267 rally (for what that's worth).  But given that:

  • the market has completed a (textbook) 5-wave Elliott affair as labeled that
  • spanned seven months, 13 figures and over 10% and, most importantly
  • is, at best, only the INITIAL counter-trend attempt against a near-10-year secular bear market

traders should not be surprised at a (B- or 2nd-Wave) correction of this year's rally that is EXTENSIVE in terms of both price and time.  A three or four month, 61.8% retrace would put this market at or below the 1.2475-area into the Nov-Dec'17 period.  And that path could be a wild, volatile one...

To read the full article RJO Futures clients may login here to the client portal and access all RJO Market Insights.

Pound Index 240 min Chart

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Equities

Stocks Rise Ahead of Jackson Hole

Greg Perlin

Stocks around the world moved higher Friday ahead of an update from central bankers, keeping most index on track for weekly gains. Futures pointed to a 0.2% rise for the S&P 500 after Shanghai stocks closed out their best day in a year. The Stoxx Europe 600 edged up 0.3% as a climb in the banking, auto and mining sectors offset losses in shares of retailers. Shares of Provident Financial gained 21%, but remained down nearly 52% this week following a profit warning and the resignation of its chief executive on Tuesday. The moves came ahead of speeches later in the day from the heads of the Federal Reserve and European Central Bank at the annual Jackson Hole gathering of central bankers. Fed Chairwoman Janet Yellen will deliver a speech on financial stability and ECB President Mario Draghi will hold a luncheon address a few hours later. While no major policy announcements are anticipated by investors and implied volatility in markets is fairly low, most will be watching their comments closely.

I expect that the ECB will remain accommodative, and Mr. Draghi has to say that to limit the upside on the euro and limit the risk on economic growth.  Should Mr. Draghi not say anything to that effect, the market could take that as a cue to keep buying the euro, he said. The euro was last up 0.2% the dollar at $1.1823after climbing around 12% this year as political risks have cleared just as the Eurozone economy has strengthened. That has put pressure on shares of the region's exporters. Flows to European equity funds have declined for four straight weeks and just recorded their first outflow since early July, according to EPFR Global.  If the euro continues to accelerate at the same pace, it's going to be difficult for European companies to see such strong growth in their earnings. The dollar, meanwhile, has weakened around 7% against a basket of 16 currencies, in part due to fading hopes for fiscal stimulus and expectations that interest rates will rise only gradually in the U.S.

Investors currently price just a 40% chance of a rate rise in the U.S. by the end of the year, according to Fed- fund futures tracked by CME Group, and a 38% chance that rates will be unchanged in August 2018, well below the Fed's official projections.

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 Daily Chart

Sep '17 Emini S&P Daily Chart

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