November 3, 2017

Volume 11, Issue 44

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Metals - Gold

December Gold: Very Two Sided, Now Where Does It Trade?

Joshua Graves

December gold futures should continue to maintain weaker levels coming into November and December, averaging 1275 for the last quarter. There are many estimates for the number of rate hikes that we will see in 2018, and their effects on the price of gold depends on who you ask. Right now, there are estimates as high as six rate hikes in 2018 to as little as one rate hike. The most likely scenario is around 3-4 rate hikes in 2018 on top of the expected rate hike in December of 2017. Interest rate hikes are usually quite bullish for the US Dollar Index and bearish for any safe haven asset such as gold. Three rate hikes in 2018 would be sufficient to keep gold in check in my opinion, barring any more North Korean action. Another factor that will continue to pressure gold is the weakening of imports into China and India as two of the world’s biggest consumers of the precious metal. We need stronger imports, mainly  from leading consumer India, to help support fundamentals. Many investors don’t pay much attention the all-important gold/silver ratio currently just shy of 75.00 (shown in the chart below, a recent dip). We’ve seen a dip in this ratio indicating that investors are finding more appeal in the rarer metals like silver, platinum, and palladium. A technical perspective reveals that any break below the recent lows of 1263.80 would most likely see a continued washout down to 1250.

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

Short Term Silver Indicators Favor Bull Camp

Eli Tesfaye

As of November 2, 2017, December silver is trading at 17.125, down about 5 cents on the day with the daily low of 17.05. A pullback in the US dollar index once again is helping to stabilize silver. Silver is getting into attractive price levels with lows holding near 17.00. The 240 min chart below shows support structure is in the short term 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, break below 16.60 in December contract will likely put near-term lows.

Silver has been consolidating in a tighter range. The Commitment of Traders with Options report (COT) shows increasing non-commercial and non-reportable traders are steadily adding to their net long positions. No doubt that the bull camp needs a farther catalyst to drive price higher. Decent correction in equities and/or fresh geopolitical concern coming out of North Korea might drive price higher. 

Bargain hunters can ease into the long side from these levels with a tight risk. Those who want to be long silver will be better served if they come in on strength rather than weakness. That said, a close above 17.05 should do the trick provided 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 240-min Chart

Dec '17 Silver 240 min Chart

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Energies - Crude Oil

Continued Inventory Draws Keep Crude Oil Afloat

The November 1 release of the EIA Petroleum Status report estimated crude oil inventories fell In the US by -2.4 million barrels. Compared to last week’s meager inventory gain of .09 million barrels, trade has responded more in kind with the bulls, as crude demand remains consistent since US refineries have been brought back online. Refineries were reported at 88.1 percent of their estimated operable capacity, which is up .03 percent from last week. Gasoline inventories were also reported to have seen a -4.0 million barrel draw down and seeing as refineries still have room to ramp up production, demand for WTI should continue into the near future.

From a technical perspective, WTI crude oil futures have continued to trend higher from the mid-summer lows in the continuous contract. Below I have included a daily bar chart, outlining some of the important price levels that could produce a reaction in the crude market. The most important of which, is the 55.22 high from December of 2016 and gain the 55.00 handle highs from January of 2017 (which also happen to be the highs of the year 2017 and 2016).  This 55.00 area has acted as resistance for several years now, and while it is holding until it doesn’t, its producing a short term barrier for the bulls. A trend line that can be drawn against the lows should produce support on a pullback into the 51.44 area, and the 50% pullback of the most recent rally comes in at 52.16. Below those levels, a larger 50% retracement can be found at 48.64, and I would anticipate support zone to be found there. Above the 55.00 handle, Fibonacci projections could take the market to the 62.00 area, which is a high probability target if this move continues higher.

In my opinion, crude oil futures are at a short term line in the sand, where a breakout higher could be imminent. I am cautiously optimistic that the 55.00 area will give way to a rally higher, however, the closer the market gets to to 60.00 per barrel, the higher probability more oil wells and rigs will be brought online (if they aren’t already) to meet demand. With global production nowhere near its full capacity, the price of WTI oil likely remains capped in the near term (where that level is however, remains the battle).

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 Continuation Chart

Crude Light Daily Continuation Chart

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Energies - Natural Gas

Natural Gas Trends Higher Towards End of Year

Jeff Ratajczak

The short term trend in Dec natural gas has turned sideways to up, with a higher high and a higher low. Momentum studies are moving from oversold levels to mid range, which should help prices with continued buying. The 9, 18, and 27-day moving averages are beginning to turn up as well, supporting the idea of an uptrend. Resistance is still seen near the all important $3.000 price level, and $2.900 is still close in support. Again, a close above $3.000 may signal a higher trading range. It seems every .10 denotes a range boundary.

The storage number came in almost precisely at 65 bcf, with the expected infusion at 63 bcf. The market didn’t range wildly after the announcement. Average to below temperatures are forecast for most of the continental United States.  Some of the southern states are still expecting an above average forecast, but the remaining time for that is dwindling. On the demand side, Mexico is set to put a number of pipelines into use early in the first quarter of next year. This can bring new buying pressure into the equation. Again, long exposure warrants strong consideration, either with call options or long contracts.

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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Softs - Sugar

Open Interest in Sugar Declines, More Strength Required to Extend Rally

Joe Nikruto

This week’s comment finds the March sugar futures contract having rallied almost a full point since October 24. A healthy move by sugar standards. The bulk of that move took place on Friday October 27 with the March contract closing up 50 points. In the three trading sessions since then, open interest has dropped about 30k contracts as the risk managers caught up with short traders. After having bounced along between 14.00 and 15.00 for so long, any move toward that upper or lower boundary looks like a potential breakout. This move is no different. Trend followers have been stopped out of recent shorts entered in late September on the break below 14. In the last few trading sessions, this short position was covered on the close above 14.50. With the 30k reduction in open interest, declining volume on the consolidation of the break out, and Wednesday's late day sell off, this recent rally may have run its course. Again, the 50-day moving average will help us sort out the tea leaves. If sugar is able to hold above 14.40, in my opinion, this market could continue to test upside levels such as the 23.6% retracement level, 15.11 and recent high from September, 15.20. Failure to hold 14.40 could set the stage for yet another run at the lows. The fundamental situation, well known and well trafficked, still looms. Wednesday morning’s Hightower comment brought up a recent report from analytics firm Green Pool. They are calling for the largest surplus in sugar in more than a decade. Green Pool attributes this surplus to increased supply and declining consumption. This report and others like it just keep coming, all speaking of rising odds of increasing surplus. I am always suspicious of “feelings” around fundamentals, but this increasing surplus situation “feels” like it could continue to pressure sugar for some time. I don’t want to stand in the way of technical strength should it be demonstrated in the coming days, but if the March sugar contract should falter near the 50-day moving average traders will want to be positioned for the potential for new lows.

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 Sugar Daily Chart

Mar '18 Sugar Daily Chart

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Softs - Cocoa

Cocoa Still on the Rise?

The cocoa market has been strong early in the week only to be surprised Wednesday with a weak close. The markets inability to push beyond its most recent highs of 2130 and 2146 left many traders scratching their heads. Anyone who has traded cocoa for some time understands how fickle the cocoa market can be when it shows any lack of follow through. However, in this case one can argue that it’s not necessarily lack of follow through, rather just profit taking that could lead the market higher.

Looking at the chart, it simply seems like the market is taking a breather. I would not be surprised since none of the fundamentals have changed in the last seven days. We are still looking at a challenging growing year, not just due to weather, but because of producer’s lack of enthusiasm at building a crop at such inexpensive cocoa values. Consequently, the market will likely continue to build up the trend to levels seen back in March when it was trading around 2200. I would still highlight the many opportunities available to speculators. During any retracement, looking at inexpensive March Call options to capture value from 2100 to 2250 seems noteworthy. I would step cautiously into participating in futures contracts at these levels unless we should see a larger set back in the market.

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 - 11/3/2017

Stephen Davis

Corn and wheat go sideways as soybeans move upward. Keep an eye on your grain trades in this bullish time of 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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Currencies

Daily Market Update - Currency Futures - 5/4/2017

John Caruso

Unexpected results in the Jobs Report, and the British pound takes a massive hit. What will this mean for the currencies?

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

Trump’s Fed Pick Expected to Remain Dovish on Interest Rate

President Trump will announce the new Fed Chair Thursday afternoon, before he leaves for China on Friday. Jerome Powell, a current Fed governor, is the front runner. Powell is expected to follow in the dovish footsteps of current Fed Chair Janet Yellen. This dovish posture has been a boon to the stock market, and a key driver in lower interest rates. Although Trump has criticized Yellen in the past for keeping rates “artificially” low under Obama, he has stated that he prefers low interest rates and a weaker dollar. Going with Powell will reinforce the belief that the current trajectory of rate hikes will be gradual, as Yellen has mapped out in previous FOMC meetings. The next hike isn’t expected until the December FOMC meeting. We should get even more clarity regarding future moves by the Fed as it wraps up the October FOMC meeting Wednesday at 1pm central. However, there will likely be no surprises as rates are expected to remain unchanged, and the rhetoric is to remain accommodating with an emphasis on gradual rate hikes.

Although Powell is expected to toe the line of the current chair Yellen, there is a stark contrast between him and past Fed Chairs. Powell is a lawyer, unlike the three previous chairs that were all PhD economists. He is said to have learned on the job after former President Obama appointed him Fed Governor in 2012. Like Fed Chairs before him, he is wealthy, but will be by far the wealthiest Fed Chair, believed to be worth 20-50 million. He is a former Carlyle Group executive and investment banker, who is believed to be cozy with the banks and may look to Wall Street as a sounding board. President Trump has repeatedly heralded the strength of the stock market as a successful hallmark during his time in office. With Powell, he is hoping for a steady hand that won’t rock the boat.

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.

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Equities

U.S. Stocks Lower On Open

Jeff Yasak

S&P futures are looking at a weak opening Thursday as investors wait for more earnings, and any news on the U.S. central bank. The market is showing a fresh downside extension to the lowest level in four sessions. It would appear that investors are banking some profits ahead of the tax reform plan, which has generally been altered to be less favorable to growth. This is because of short-term benefits combined with what appears to be a longer term tax hike. Other issues negatively impacting the equity market this week are possible price-fixing threats against drug companies, intense scrutiny of social media platform companies, and noted weakness in bellwether Tesla shares.

As previously mentioned, the December S&P has displayed negative overnight chart action from Wednesday to Thursday, but it also seems as if the index rejected that four day downside breakout. It is possible that the e-mini S&P will attempt to buy the rumor ahead of the tax reform release, and it is also possible that the index will receive a minimal benefit if the appointment to the Fed is Jerome Powell. However, we would suggest that the rally of the last seven sessions has factored in a dovish Fed chairman and something pro-growth from tax reform. 

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 E-mini S&P Daily Chart

Dec '17 Emini S&P Daily Chart

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