November 10, 2017

Volume 11, Issue 45

Feature Article

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Metals - Gold

December Gold: Where Do We Go From Here?

Joshua Graves

Gold has seen very positive price action over the past few sessions, but does it continue from here? The fundamental reasons why gold should continue to move up are strong. Right now, it appears that the equity markets are a bit overheated. We have seen a bit of a pullback yesterday as the market reacted to news that the republican led tax reform bill has seen a setback on the corporate tax cut not seen until 2019. This is a much bigger deal that most make it out to be. Right now, the equity markets are pricing in a perfect tax bill that will be implemented over the next 6 months. Something such as this delay in a corporate tax bill have ramifications that could drive gold futures higher. We also have things starting to heat up over in North Korea once more. It seems a deal is less likely after a direct statement from President Trump. A military solution over the next year seems more likely than not.

If you look at the gold market from a technical perspective, it seems gold is going to continue to march higher, with confirmation of a change in trend with a close above 1300. We found much needed support at the 200 day moving average, and are currently trying to blow through the 50 and 100-day. We have seen the MACD cross indicating a buy, and are not in an overbought or oversold territory. 

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 - Copper

Copper Futures Could Take Another Leg Up

Phillip Streible

After an impressive 23% gain on the year copper could be seeing global growth continue to boost demand. With falling unemployment and rising industrial production, this could lead to the next major drawdown in inventory. Looking at LME Copper stocks we have seen a drawdown of 13 out of the past 17 days. Now, Shanghai copper stocks may have risen in recent weeks, but I feel that will slowly wind down once Chinese demand kicks back into full swing.

Looking at a daily chart of December copper, it’s easy to see that each pull back was met by a higher high and Fibonacci extensions should command the next wave up to 3.35/LB. Keep an eye out for two consecutive closes below the 50 DMA at 3.0683 where a washout may occur down to 2.9582.

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

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Energies - Crude Oil

Oil Market’s Volatile Week

Michael O'Donnell

As the week began, the oil market caught a bid amid the political tension in the Middle East, namely in Saudi Arabia. This included:

  • An intercepted missile from Iran over the airport in Riyadh, which has led to saber-rattling
  • A downed prince’s helicopter near the border of Saudi Arabia and Yemen where there is conflict
  • The detainment of numerous potential political adversaries of the Crown Prince to consolidate power

This led to a gap between this week’s open and last week’s close of $0.27 per barrel from $55.70 to $55.97. Some believe that gaps are frequently filled.

As bullish as this was to begin the week, Wednesday’s EIA Petroleum Status Report saw a build in inventories of 2.2 million barrels which may have been seen as a surprise by some or at least a change of pace from the previous reductions in inventory.

In reading The Gartman Letter and market quotes, one also notes that the Brent WTI spread has widened considerably in the recent weeks while narrowing less in previous days. It also notes that there has been a shift from being paid to store to oil being bid out of storage and that the consolidation of power in Saudi Arabia could be bearish for oil over the long term.

Also interesting to note in discussion with my teammate Eli Tesfaye, is the cost to mine Bitcoin in energy terms, a potential bullish factor to consider.

Technically, we can see these fundamental factors priced into the market efficiently, the weekend’s news and gap, the build in supply, and pause in upward momentum. Some technician’s may look for mean reversion and the gap to be filled or for a retracement or break in the sharp upward movement of late. Others could see a lack of resistance and a potential bull flag forming. Some may position with options for a number of scenarios.

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 Light Daily Chart

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Energies - Natural Gas

The Return of Winter and Natural Gas

Jeff Ratajczak

The trend in December Natural gas is up with a higher close 5 trading days in a row. Resistance was fairly strong at 3.200, but as of this writing we have penetrated that level. A close above previous resistance may signal a shift to a higher trading range, with 3.200 becoming the new support and the next resistance number being 3.270-3.300. Caution is warranted because momentum indicators are ranging above overbought levels, but this only means the market is trading with strength in this direction. We will wait to base any bearish plays on divergence between the market pricing and the momentum indicators, MACD and RSI. 

Old man winter has come back with below average temperatures forecast in the 11-16 day range for most of the continental United States. The forecast calls for mostly dry weather as well. The natural gas storage number average estimate calls for a 17bcf build, this is well below the 5 year average of 45bcf. Some estimates on the low end are calling for draw in inventory. If this happens we may see a considerable jump in prices. $3.300 resistance is a very real profit target at that point. I’m still suggesting long side exposure until the market tells me differently.

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 - Cocoa

Range Bound Cocoa Futures Looking for Breakout

Peter Mooses

December cocoa futures broke above 2200 – finally trading out of the range we have seen since April of this year. Demand seems to be on the rise as we enter the holiday season. Supply concerns will begin to move the March futures contract higher. Three big moves higher this week have given traders reason to believe the bull cocoa market may be coming back slowly. The recent moves in the Euro and Pound also support this thought process. As the weather in West Africa gets dryer, look for production numbers to move lower – causing prices to move and hold above 2200. If this new trading range of 2100-2200 can hold, and buyers continue to enter the market look for cocoa futures to end the year around 2300. The 50-day and 200-day moving averages have been broken, another bullish indicator these new ranges may be here to stay. Over the next few weeks, look to see if traders move their long positions into the March and May contracts as next year’s crop production numbers continue to come in lower than expected.

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 Consolidation

Adam Tuiaana

Heavy consolidation with wide swings seems to be the primary story in December coffee prices. Little, if any, additional news to swing what has been an overall weak demand for coffee, coupled with supply issues reported from the largest producers in the world, this consolidation with likely continue for a little while.

Since the large and massive selloff that began in mid-September, coffee prices have been able to garner some solid support (and now consolidate) at the 124 level. The wide consolidation range from 127 highs, to the 123 lows have allowed for option writers to collect some good premiums.

Until we hear some solid news to push prices out of this sideways action, we will likely see this continue. Keep an eye out for violations of the aforementioned range highs and lows, as they will likely act as very good support and resistance to gauge entry from either side.

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 - 11/10/2017

Stephen Davis

A bearish USDA Report affects both the corn and soybean markets. How long will the highs last?

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

Expecting Record High for Fourth Quarter Pork Production

December hogs have closed lower for the fifth session in a row, and the turn down in open interest from an extremely high level suggests that long liquidation selling is in place. A slowdown in packer demand for slaughter last week with an active and record high supply flow is a bearish development, and if pork cutouts turn down into early December, the market is vulnerable to further short selling. While slaughter was down 3.1% from last year last week, pork production for the fourth quarter is expected to reach a record high of 7.035 billion pounds, which is up 5.8% from last year and the selling yesterday pushed this marker down to the lowest level since October 24.

MARKET IDEAS: The December lean hogs market is reaching oversold levels, however a long liquidation-selling trend looks likely if pork values turn down due to likelihood of record weekly slaughters in the weeks ahead. Resistance is at 65.35, with 63.42, and 61.97 as key support levels. Traders could consider selling a bounce if we break above these resistance levels.

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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Currencies

CME - The Evolving Economics of Bitcoin, Gold and Fiat Currencies

By Erik Norland, Senior Economist & Blu Putnam, Chief Economist, CME Group

An inherent tension exists between the two major purposes of money. Currencies that are perceived as great stores of value, such as gold and bitcoin, make for poor mediums of exchange. By contrast, currencies that are effective mediums of exchange, such as fiat currencies used the world over, can make for dubious stores of value. Where a currency falls on the store of value versus medium of exchange spectrum influences its usefulness as a unit of account and a standard of deferred payment.

Supply Scarcity and Stores of Value

As stores of value, many investors perceive gold and, more recently, bitcoin as second to none. Since 1971, gold has appreciated from $35 per ounce to around $1,300 at the time of this writing, a gain of over 3,500%. Bitcoins have done even better. On July 19, 2010, a bitcoin was worth $0.08. At the time of this writing, it’s priced close to $5,300 per bitcoin, a gain of over 6,000,000% in seven years. Not bad!

Figure 1: Gold and Bitcoin Have Been Great Stores of Value.

Figure 1: Gold and Bitcoin Have Been Great Stores of Value.

Whether gold and bitcoin really are stores of value is not universally accepted. Viewed from a fiat currency perspective, such as that of the U.S. dollar, bitcoin and gold are, to say the least, not without risk. Over the past 12 months, the annualized standard deviation of gold has been 12%. Gold had a 70% drawdown between 1980 and 1998. Compared to bitcoin, the gold market looks sleepy. Bitcoin owners experienced a 60% annualized standard deviation over the past 12 months and in the past, it has achieved a mind boggling 175% annualized risk (Figure 2). Moreover, in its short life, it has already had drawdowns of 93% and 84% (Figure 3).

Go here to read this extended article.

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Equities

Stocks Lower Heading into Friday’s Open

Bill Dixon

Stocks experienced heavy selling on decent volume during Thursday's session, and it is spilling over into today. After seeing the biggest broad-based selloffs we’ve seen in weeks, the markets did manage to mount a decent recovery heading into the close. However, we’ve been unable to build on the recovery rally during the evening session. The biggest factor in yesterday’s selloff was the inaction in Washington. Markets have been rallying lately on strong earnings and the prospect of actual progress on tax reform. We’re coming to find out that betting on anything actually happening in Washington is a sucker’s bet, and it appears that we’ll have to wait on anything meaningful yet again. Today’s news slate is very light with a small number of earnings reports and Consumer Sentiment being the only data release. The slate picks up next week though with CPI, PPI, and Retail Sales being some of the highlights.

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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