October 20, 2017

Volume 11, Issue 42

Feature Article

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Metals - Gold

December Gold, Has a Short-Term Top Been Formed?

Joshua Graves

Recently, December gold has seen fairly choppy, two sided trade as the market struggles to find a direction. A recent low was clearly formed on October 6 at around 1263. The question as we see a failure yesterday of gold to hit 1300, is are we now headed lower as a result? Both bulls and bears have good points to make a case either way. The first reason and most obvious bullish factor is the North Korean issue. We’ve seen a quiet period from the hermit kingdom with no nuclear or missile tests. It’s something that will forever be an issue affecting gold. Another reason to be bullish would be key US and Chinese economic data that could come in weaker than expected, potentially leading future outlooks of rate hikes coming down and even a December rate hike potentially being questioned.

Reasons to be bearish are at the moment outweighing reasons to be bullish in my opinion. Right now, the tax reform situation in the US is looking more and more of a possibility with passage in the Senate of a budget plan. At the very least it increased market sentiment that something can actually pass in congress. The real question is if tax reform is passed and repatriated money is brought back into the US, how much of an effect it will have on the US economy. Some are calling for huge gains if it happens, others say much is already priced in and will have a negligible effect. Either way this is a long way away, and in the short term gold most likely breaks lower on a lack of geopolitical concerns, and continued resilience in the US dollar.

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.

Dec '17 Gold Daily Chart

Dec '17 Gold Daily Chart

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Metals - Silver

Technical Improvement in Silver Market

Eli Tesfaye

On August 19, December silver is trading at 17.21, up about 21 cents on the day with the daily low of 16.93. A pullback in the US dollar index once again assisted the pop in silver. Silver is getting into attractive price levels with lows holding near 17.00. The weekly chart below shows that support structure is in place to facilitate higher price action. Momentum will probably send silver to retest 17.50 levels. A break above that will probably entice farther rally. All that said, a break below 16.80 in the December contract will likely put us into near-term lows.

Since silver saw a high of 18.205 on September 8, 2017, the market has been in the downtrend; however, since the commitment of traders with options report (COT) from last week shows non-commercial held 58,351, we may see more longs in this week's report that will be released this Friday. I suspect that if the dollar correction to the upside ends in near term, silver will likely stabilize and probably head higher. Silver needs a catalyst to further drive gains, such as liquidation in equities or some increased concern coming out of North Korea.

Those who want to be long in silver will be better served if they come in on strength rather than weakness. That said, a close above 16.90 should provide that near-term lows are possibly in.

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.

Dec '17 Silver Weekly Chart

Dec '17 Silver Weekly Chart

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Energies - Crude Oil

Crude Trading Above Trend Lines, Can It Continue Higher?

Crude oil futures have now rolled into the December ’17 contract, and the Daily Continuation Chart continues to show a market that is relatively range bound even though price action is forming a constructive pattern of higher highs, and higher lows. These “stair steps” higher are breaking above downward sloping trend lines drawn against the February, April, May, and August highs, as well as holding above upward sloping trend lines drawn against June and August lows. This technical picture is added to by two supportive Fibonacci zones (50% lines) at 49.22 and 47.46, which should find a cluster of buyers utilizing these tools.

The most recent EIA Petroleum Status report (10/18/17) saw a drawdown of -5.7 million barrels, which was higher than expectations and over double last week’s release of -2.7 million barrels. This report is considered bullish for trade, and is a main fundamental factor supporting price in the market. Crude oil imports also fell 134,000 barrels to 7.5 million barrels, which brings the 4-week average to 7.4 million barrels per day. This is 1.9% below last year for the same time frame.

In my opinion, crude oil futures have been committed to range bound price action between the $40 and $60 handles. While this range continues, it will be important to watch the smaller time frame charts for changes in intermediary trends which will cause this market to trade between the high end and low end of its range. With that being said, I am expecting support for crude in the near term while above $51.00, to take us towards $54.00. If price action breaks below $51.00, the next major support will be into the $48.00 area, and I will be expecting the market to then trade higher to test the $55.00 threshold.

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 Light Daily Continuation Chart

Crude Light Daily Continuation Chart

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Energies - Natural Gas

Natural Gas Trends Low, Can it Build?

Jeff Ratajczak

Natural gas for December is trending lower today by 40 points. The general overall trend is sideways to down. Momentum studies MACD, Stochastics, and RSI are at mid-levels and rolling over to lower levels.  This might increase selling pressure as lower levels are penetrated. Short term moving averages are also trending lower. Support on daily chart is at 3.013. Resistance is fairly strong at 3.200. A close above the corrective high of 3.180 is need to negate the current trend, and may signal a move to a higher trading range with 3.200 becoming support. A close beneath 3.010 would do technical damage to the chart and may reach for swing lows not seen for almost a year.   

The natural gas storage number is an expected build of 59 bcf. This number is below the 5-year average. Last week the build was 87 bcf. Total storage is slightly below the 5-year average as well. The past few weeks of weather forecasts were above average, but the next 8-14 day report suggests average temperatures. This may cause a smaller build or even a draw, because of heating demand. Cautious exposure to the short side is recommended. Put spreads or short plays with tight stops fit the bill.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-874-81104 or jratajczak@rjofutures.com.

Dec '17 Natural Gas Daily Chart

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Softs - Sugar

Sugar chart looks heavy, downside breakout looms?

Joe Nikruto

This week’s comment finds March sugar futures about right where we left them in our last comment. Early in the week, March sugar traded to and failed at the 50-day moving average. Failure to trade and hold above key moving averages is a hallmark of bearish markets. The other side of the coin in the sugar market has been an inability of the March contract to make new lows. For the last 30 days, March sugar has been well supported, unable to break down to any new lower ground while fundamental news flow has leaned largely bearish. Commitment of Traders watchers have pointed out the short position of the funds repeatedly, as have I in this space. But that alone does not appear to be enough to take sugar futures to higher prices. The chart below shows that March sugar has failed to breakout meaningfully in either direction. Classic technical analysis tells us that markets that consolidate in this way typically, ultimately, continue on in the direction they were traveling before the consolidation. To this end, price action below 13.82 should see the funds adding to their already sizable, near 100k contract, short position. Over the last three months, March sugar has whipsawed traders from week to week and made for difficult directional trading. Because of this traders have to stay nimble. But, should we see a breakdown below recent lows of 13.83 and 13.72, then at least a test of 13.50 is in play. Likely much lower.

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.

Mar '18 Sugary Daily Chart

Mar '18 Sugar Daily Chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 10/20/2017

Stephen Davis

The harvest is coming up, and the demand remains high. International grain trades are executing, what will this mean for the 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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Agriculture - Livestock

Top in Cattle?

In 11-Oct's Technical Blog we identified 09-Oct's 116.475 low as our short-term risk parameter the market needed to sustain gains above to maintain a more immediate bullish count.  Its failure to do so Tuesday not only confirms a bearish divergence in short-term momentum, but also threatens a broader peak/reversal threat for longer-term reasons we'll address below.  As a direct result of this admittedly short-term mo failure, we believe the market has defined 11-Oct's 119.175 high as the END of a 5-wave Elliott sequence from 18-Aug's 106.725 low and start of at least a significant correction, and possible reversal of the entire Aug-Oct rally.  Per such, 119.20 is considered our new short-term risk parameter from which all non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed...

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

Live Cattle 60 min Chart

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Daily Market Update - Currency Futures - 10/20/2017

John Caruso

The Fed's budget is approved, which may affect thoughts on interest rate hikes. The euro sees a lot of movement as Germany inflates, and Spain takes on Catalonia. Keep an eye out for next Thursday's ECB Report.

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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Stocks Pulling Back off Record Highs

Jeff Yasak

Overnight global equity markets were weaker, with TOPIX being the exception. Political tensions in Spain, soft UK retail sales numbers, and negative psychological threat from the anniversary of the 1987 stock market crash all led to the downward push. With many stock index measures and stock issues sitting in new all-time highs, the mere psychological effect from the anniversary is having an effect. Fortunately for the bull camp, overnight Chinese economic data was generally upbeat, and corporate earnings have been supportive. However, there is the uncertainty in the direction of the Fed leadership on whether or not they will be hawkish or dovish on their interest rate decisions. Traders will be looking for news from the White House meeting with Fed Chair, Janet Yellen. With a number of negatives facing the market and early, rather noted, damage on the charts, the stock market crash anniversary is seemingly given some credibility. Initial support in the December S&P is seen at the early low of 2542.50, and then not until the 21-day moving average down at 2532.40. In order to turn the bias around, we might only require a rally back above 2551.00.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-861-1656 or jyasak@rjofutures.com.

Dec '17 S&P E-mini Daily Chart

Dec '17 Emini S&P Daily Chart

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Exchange Info

Announcing: TOPIX Futures at CME

Launching in 2018, TOPIX futures, based on the Tokyo Stock Price Index, will offer global investors an additional product to capture benchmark Japanese equity exposure.

TOPIX futures will enhance CME’s suite of broad-based equity index futures and offer market participants additional opportunities for spread trading and fine-tuning their exposure.

Read Press Release

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Interest Rates

Tax Reform Hits Treasuries!

Treasury bond prices collapsed, and yields rose, late yesterday and into this morning as the Senate passed a budget bill that makes it easier to pass tax reform with a simple majority of votes. 

News hit bond prices from several different angles as risk appetite surged, rotating money out of bonds, which are typically viewed as a safe haven asset. This is best illustrated with today’s market action; S&P at all-time highs 2570, up .35% on the day, and 30-yr Treasury Bonds at 152’02, down .95% on the day.

The other major angle is of course the Fed. According to the CME website, chances of a December rate hike now stand at 91.7%. The Fed has intimated several times that they want to get ahead of inflation, and are comfortable with another rate hike this year. However, the Fed has also maintained that they are not keen to raise rates too quickly, and will take a go it slow approach. This has approach has been welcomed by the equity markets, which don’t like to see aggressively tight monetary policy. The markets also seem to be giving a nod of approval to reports that President Trump is leaning towards Fed Gov. Jerome Powell as the next Federal Reserve chief. Powell is seen as an intellectual ally of current chief Yellen, and likely to maintain her dovish posture.

The technical picture is a continuation of the theme I have mapped out in the last several articles, which can be found under my profile. This theme is the development of what could be the beginning of a bear market in bonds. At the moment it hasn’t fully materialized, but the intermediate trend is down. In the last article I mentioned 154-155 handle as resistance, and an area of opportunity to establish short exposure. That resistance level held into yesterday, and any short term bulls capitulated overnight. There are short and long term opportunities to trade bond futures. Opportunities that are very attractive to traders that would like to explore a different space from the equities markets.

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.

Dec '17 30-yr T-Bond Daily Chart

Dec '17 30-yr T-Bond Daily Chart

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This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.


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