October 27, 2017

Volume 11, Issue 43

Feature Article

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Energies - Crude Oil

Crude Oil Continues to be Bid

Michael O'Donnell

Yesterday’s EIA Petroleum Status Report saw a small increase in inventories (0.9 million barrels) marking a return to normal production levels in the gulf of Mexico as the market weighs pre-hurricane and post-hurricane numbers, which have also affected crude oil’s byproduct markets and may present opportunities in the crack spread being evaluated on our desk. The market also caught a bid after reports that Saudi Crown Prince Mohammed bin Salman backed OPEC production cuts/current quotas, possibly signaling the outlook of OPEC as a whole and in the future. There is also the factor of price levels and profitable shale production.

Looking at the daily chart in December oil, we see that while maintaining a wide range for most of the year, the trend has been upward since June’s low. While it is easy to see a reversion to the means below oil’s current price, there also seems to be little resistance should the previous highs in the contract be taken out. Absent trading below the $49.48 level, which would seem to nullify the current uptrend, trade above the $53.11 high of late September could see an acceleration of the current uptrend. In Thursday afternoon’s trade, the market is trading less than 50 cents (per barrel) from this level.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or modonnell@rjofutures.com.

Dec '17 Crude Oil Daily Chart

Dec '17 Crude Oil Daily Chart

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Energies - Natural Gas

Natural Gas Sees Support in Low Temperatures

Jeff Ratajczak

The trend in December natural gas is currently sideways to down. It is down 33 ticks at 3.049. Monday’s rally was held by the 3.200 level which leads me to believe it has reached a short term lull in trading. Momentum indicators are at mid-levels and turning south, and the moving averages are turning downward too. A close above the resistance around 3.200 would be needed to turn the trend to positive. A close beneath 3.100 may signal a sell off to lower range where 3.100 becomes resistance and support kicks in 3.020-3.040. 

Support for the December gas contract continues from below normal temperatures in the most of the continental United States moving into the beginning of November, according to David Hightower of the Hightower report. The demand for heating will continue to increase with winter rapidly approaching.

Tightening down stops on any short positions is recommended, but staying exposed to the short side until the markets tells me differently is advised. Any options should be monitored closely because of decaying time value.  I’ll be trying to squeeze few more points from the short positions. 

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

Dec '17 Natural Gas Daily Chart

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Metals - Gold

Is Gold Still a Buy?

Nicholas DeGeorge

In Friday's early morning trade, December gold has bounced back off its overnight low. This is mostly due to the Catalonian lawmakers vote to split from Spain, taking the country’s political crisis into uncharted territory. Also, after the ECB announced their long-awaited QE tapering, the US dollar went sharply higher Thursday, which caused commodities across the board to come down. The US House of Representatives are another catalyst that was pushing the dollar up and gold down, as they adopted a budget that could further the President’s agenda on re-writing the tax code.

If we take a quick look at the daily December gold chart, you’ll clearly see that gold broke the long-term trend line that began back on July 10. However, gold is trying to hold onto the 200-day moving average of $1,267. If it does, look for a rally back up to $1,285-$1,300 a troy ounce. I have highlighted below the technical levels in this article on our RJO Futures Pro charts. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-453-4494 or ndegeorge@rjofutures.com.

Dec '17 Gold Daily Chart

Dec '17 Gold Daily Chart

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Metals - Copper

The Key Ratio Between Copper and Gold

Phillip Streible

These two commodities are the first markets I check every morning because they paint the picture of any global overnight developments. Simply put, if copper prices rise while gold futures fall, it’s a sign of a growing global economy whereas if gold futures rise while copper futures fall, it’s a sign of a contracting global economy.

Large movements in either commodity can give clues as to what developments have occurred. An example of a large upward movement in the gold market overnight could indicate heightened geopolitical risks, such as another rocket  test fire from North Korea. A large downward movement could be what we saw Thursday, due to an ECB policy change which affects Europe’s economy, causing the dollar to rise and gold futures fall. Copper futures generally make large price fluctuations based on Auto Sales data, considering that global auto sales and production have been rising steadily since 2016. 14% of all copper production makes it way to the automotive sector. 

To give you an indication of the performance this year to date, copper futures are up 26%, while gold futures are up 10%. Two price levels and one economic indicator to pay attention to through the end of the week are 1266 in gold (this is the 200-day moving average), a close below this level could indicate the long term trend is turning down. As for copper, a move above 3.26 would indicate a new 52-week high, and a new bull market would take place. According to economic data released Thursday. Gross Domestic Product is the traditional yardstick used to measure the strength of economies, and expectations are for 2.7%. But remember, once the economy becomes too heated, it becomes an inflationary. At that point, you would want to own gold and copper at the same time. 

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.

Dec '17 Copper Daily Chart

Dec '17 Copper Daily Chart

Dec '17 Gold Daily Chart

Dec '17 Gold Daily Chart

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Softs - Cocoa

Higher Demand, Higher Prices in Cocoa

Peter Mooses

December cocoa has formed a bullish channel since late August, as depicted on the chart below. Although the market has found ranges, it continues to move higher. After last week’s whispers of demand turning bullish – this week’s sessions have pulled the market lower. Technically, the market was able to break and hold above 2100 for a few days. The December contract was even able to trade above 2150, but that was short-lived. The market will need to break 2185, and new support levels need to be held in order to have a breakout away from this recent channel. Supply issues from West Africa could add to the recent volatility and keep the trade in this recent range of 2080-2120. Last week’s grinding data showed that the improving global demand for the product may be a new longer-term trend. Ivory Coast’s 17/18 production seems to be 20% behind last year’s growth. The pods in West Africa are getting some help with the recent warm, dry weather. Pod disease has been an issue as we saw in Cameroon – production numbers have taken a hit there due to the recent outbreak and wet pods. Supply and demand will be the story of Q4 as we head into years end and move focus onto the 17/18 crops.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or pmooses@rjofutures.com.

Dec '17 Cocoa Daily Chart

Dec '17 Cocoa Daily Chart

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Softs - Coffee

December Coffee Violates Support

Adam Tuiaana

December coffee has now violated a major support area twice in the last two weeks. The low of 12430 from October 5 should have been enough to support December coffee, but this recent selloff says otherwise. Likely, it’s the continued wet weather in Brazil that has kept many bulls from entering the market, or short sellers from covering. Coffee prices want to move higher, but the simple lack of any news that would otherwise push prices higher is currently winning this battle. In addition, the continued positive price action from the US dollar, which has been in place since early September, will also keep coffee prices in check. For now, the aforementioned 12430 level should pose major resistance for coffee prices.

Look for December coffee prices to continue their downward spiral to at least the 120 level, with the 11910 low from June 22 acting as strong support. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-536-8601 or atuiaana@rjofutures.com.

Dec '17 Coffee Daily Chart

Dec '17 Coffee Daily Chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 10/27/2017

Stephen Davis

Corn and wheat are seeing similar actions, what will we see through the end of the year?

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

Demand Sentiment Remains Strong for December Lean Hogs

December Hogs are trading +0.125 this morning with a very strong cattle market, and a continued strong pork cutout supporting the bulls. The CME Lean Hog Index as of October 20 came in at 65.23, up 1.02 from the previous session and up from 60.24 the previous week. The USDA pork cutout, released after the close yesterday, came in at $75.49, up 31 cents from Monday and up from $73.88 the previous week. This was the highest it had been since September 20.

TODAY’S MARKET IDEAS: The outlook ahead for increased slaughter and production could spark a significant sell-off if pork values turn down, but if park values stay strong, the cash market may remain in a short-term uptrend. December hog selling resistance is at 64.90, with 61.70 and 60.55 as initial key support. 

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 Lean Hogs Daily Chart

Dec '17 Lean Hogs Daily Chart

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Agriculture - Livestock

Slippery Slope for Cattle, Hog Bulls "Up Here"; Tighten Risk Assumption



Yesterday's December live cattle continued rally above Wed's 120.475 high leaves Wed's 118.825 low in its wake as the latest smaller-degree corrective low the market is now required to sustain gains above to maintain a more immediate bullish count.  Its failure to do so will confirm a bearish divergence in short-term momentum, complete a minor 5-wave Elliott sequence up from 18-Oct's 114.525 low and break the portion of the broader bull trend from that 114.525 low.  Per such 118.80 is considered our new short-term risk parameter from which traders are advised to rebase and manage a still-advised bullish policy.  Former 11-Oct resistance around the 119.15-area stands between that 118.80 short-term risk parameter as a new near-term support candidate we'd expect the market to hold if it's still technically strong "up here"...

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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Currencies

Dollar well supported after progress on tax reform

Tony Cholly

Dollar: The dollar has extended its upside breakout move to the highest price level since mid-July and while it has slowed its ascent, it continues to hold the upper hand over most major currencies coming into Friday morning’s trading. While the catalyst for the USD updraft came from the aftermath of the ECB meeting, there were positive developments on this side of the Atlantic as well. Progress has been made on approving the tax reform measures that may include a way to repatriate foreign profits, which will provide underlying support to the dollar as long as it is on the table. US economic number have underpinned the USD as well, but the market will need to see positive results from today’s GDP and consumer sentiment readings for the dollar to hold onto its recent gains. Support comes in at 94.47 as the dollar looks to finish the week on an upbeat.

Euro: The Euro has at least put some brakes on its descent, but remains firmly in negative territory early today. Any potential benefit to the Euro from the tapering of QE was offset by the decision to keep the program open-ended and by dovish post-meeting comments by ECB president Draghi. A higher than expected reading on the German import price index provided some support as it points towards an uptick in inflation. However, the situation in Catalonia continues to smolder and will cast a shadow over the Euro. Resistance is at 11700, as the Euro has plenty of work ahead to repair the chart damage sustained over the past two sessions.

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 Dollar Index Daily Chart

Dec '17 Dollar Index Daily Chart

Dec '17 Euro FX Daily Chart

Dec '17 Euro FX Daily Chart

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Equities

Stocks Pare Early Losses

Bill Dixon

All three major indices are higher early in Friday morning’s trading session. Several factors have contributed to today’s action. For one, the earnings cycle has continued to pump out impressive numbers. A few of the bigger names in equities reported after the bell yesterday and blew it out of the water. Building on Thursday's post market releases, Friday morning’s GDP number was higher than expected, coming in at 3.0% vs a consensus 2.5%. Higher inventories, strong motor vehicle demand, and strong consumer spending all helped to boost the number. We also saw another solid Consumer Sentiment reading of 100.7. We seem to be making some progress in Washington as the house budget passed, and it appears tax reform has some hope. If all goes well, we could have something done by year end. 

These factors have been able to push the Nasdaq to a new all-time high, while the Dow, S&P, and Russell still have some work to do to overtake the highs we saw earlier in the week. Next week’s news slate is absolutely loaded. The two stars of the show will be the FOMC announcement on Wednesday afternoon and the jobs info on Friday morning.  

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5342 or bdixon@rjofutures.com

Dec '17 E-mini S&P Daily Chart

Dec '17 Emini S&P Daily Chart

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