December 1, 2017

Volume 11, Issue 48

Feature Article

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Metals - Gold

February Gold, Is There A Correction Coming?

Joshua Graves

Let's just take a look at gold from a broad perspective. It's had quite a roller coaster ride from high 12's to low 13's over the past few weeks. The big question is if there is a longer term broad trend forming. The first thing I would tell all traders looking at gold is remember why gold finds a bid in the market; in the end it is a safe haven asset! Gold will typically find support whenever there is a political or militarily destabilizing type of event in the world.  Right now, gold is flirting with a lot of very key fundamental news. The biggest supporting factor is that the stock market is clearly in the stratosphere. It's not an exaggeration at this point! There is no reason for the stock market to pull back at this point. Market sentiment hasn't been higher, and all three stock indices are in record territory.

Gold will find a very strong bid when there is more volatility, and uncertainty. More pressure for gold can be found in extremely positive economic news which has been seen week after week. It can also be found in generally positive market sentiment, as the public finds that it's difficult to trade against this trend.

There are reasons to be bullish gold, however. Tax reform is still not a sure thing with several senators expressing concern. There is also North Korea, laughably challenging the United States to a military showdown, and general instability in the world. If one thinks about Venezuela, the country that recently announced they might suspend sales of oil to the United States in retaliation for hostile political action. President Maduro doesn't understand economics and should know that his oil would need to be sold to another country should this happen, and the void left in the USA would quickly be filled by others. This type of instability could drive gold higher, eventually. Any sort of washout in February gold below $1,270 will most likely see follow through selling.

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.

Gold Feb '18 Daily Chart

Gold Daily Chart

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Metals - Silver

Bears Have Technical Edge in Silver

Eli Tesfaye

March silver is trading 16.355 down about 11 cents on the day. The chart below shows breakout outside of tight consolidation. Bulls failed to keep up momentum and leave the bears totally in charge of Silver. The only argument the bulls can make is probably a retest of 17.00 level as indicated below. As the probability of passage of tax bill goes up, risk type of trade is taking a back seat. Other matters to consider is also the rise of Cryptocurrencies that are attracting more attention than the metals as a means of diversification. Regulators are giving the green light to Crypto’s resulting in other options to hedge.

As always, on a nice price break like this one, Bulls can wait and see for the price to firm up to go long. Bargain hunters can ease into the long side from these levels with a tight risk. As I have stated before, those who want to be long silver will be better off if they come in on strength rather than weakness.  That said, a close above 17.05 should provide that, near-term lows are possibly in. The March contract of silver is trading around 17.200 at this time.

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.

Silver Mar '18 Daily Chart

Silver Mar '18 Daily Chart

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Energies - Crude Oil

Can WTI Crude Push Through $60?

This week’s reading of the EIA Petroleum Status Report, crude oil inventories declined in the US by -3.4 million barrels.  Compared to last week’s inventory draw of -1.9 million barrels, as crude has held onto the majority of its November gains.  Demand remains consistent since, US refineries have been brought back online, and we are seeing consistent draws on crude inventories, suggesting that there has yet to be a flood of supply to this market.  With the recent news of the Keystone pipeline spill, the market immediately responded as if oil was in short supply.  The market witnessed forward months (winter months like January and February) trade at a premium to back month (spring and summer months like April, May, June, etc.).  This inversion in the curve represents the market’s fundamental reaction to a short-term supply crunch, and without a continued rally in crude futures, the market may not believe in the original supply shortage the market began to price in.

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 55.24 high from December of 2016, which the market is currently finding as support now that it has closed securely above.  Below those prior highs, the 54.79 and 50.50 50% Fibonacci inflection zones are the next key downside support levels bulls should pay attention to.  To the upside, resistance will likely be found into the 60.00 handle, as the fundamental trade suggest a significant price barrier there (as this is where US shale becomes profitable, and likely will flood the market with ample supply).  Technical upside projections come in around 62.50, as a target zone from the previous Fibonacci support levels.

In my opinion, crude oil futures are now above a short term line in the sand, where a breakout higher could be imminent.  I am cautiously optimistic that the 55.00 area will now hold as support and give way to a rally higher, however, the closer to 60.00 a barrel the market gets 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), but the trend is up until it fails.  However, if the price of WTI crude cannot break through its multi-year ceiling, there is the risk of a larger timeframe range still being underway (with its low end down into the $40’s).

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 Chart

Crude Oil Daily Chart

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Energies - Natural Gas

Natural Gas Trend Down Heading into Colder Temperatures

Jeff Ratajczak

Happy holidays and welcome back from the Thanksgiving break.  My charting indicates short and longer term trends are still pointed down.  The 11/24 sell off provides a near-term target for shorts and a hail stop for all longs.  Today’s storage number is estimated to be averaged at -37 bcf draw.  A larger draw may signal an upside move.  Close in support on a daily chart is near the 3.100 level or today’s low.  Resistance and the corrective high are both at 3.218.  A close above 3.200 may signal a move to the next higher trading range.  Momentum studies are at mid-levels and trending lower.  This can accelerate moves to the downside if support is violated.

Trading might be dependent on the storage number for today. We are below last year’s and the 5-year averages for gas storage.

 The size of the draw might determine direction today, but in the long run weather may make our decision for us.  The 1 to 5-day forecast calls for normal to above normal temps, however longer term models are calling for colder air from the arctic to invade the US and drop temperatures below seasonal averages.  Chicago will struggle to have highs above freezing early next week.  Colder weather is forecasted after that for the foreseeable future as winter will return and demand for heating.  Long outlook: Bullish long exposure warranted on pull backs, or lager draw.

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.

Natural Gas Jan '18 Daily Chart

Natural Gas Jan '17 Daily Chart

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Softs - Sugar

Sugar Escaping Recent Range or Large Spec Pain on Tap

Joe Nikruto

This week’s comment finds the March sugar contract retreating.  Trade houses along with large national commodity concerns are jawboning the market lower and with energy prices under pressure sugar has been unable to hold above recently established highs.  Talk of global surplus has once again been hoisted as the overall theme the market has to contend with. This while China has quietly been increasing purchases and Brazil moves more cane to ethanol instead of sugar.  There is no doubt that the anticipated surplus looms large.  But with global growth on a “synchronized” upswing and China buying dips there is an argument that the sugar market is auctioning higher to escape what has been equilibrium in the 13.50 to 15.50 range.  Fundamentals, as we see them in the wire services, are not overwhelmingly bullish.  For the last 6 weeks the chart has been climbing higher, forcing large speculative traders out of short positions and in some case into longs.  Price levels have been breached to the upside week after week taking the large spec community as a whole to a near flat position as reported by Commitment of Traders report.  This places the sugar market at a pivotal point as funds do not typically stay flat.  The commodity trading funds can often experience losses when price movement forces them to exit or take positions only to have the market continue in the direction it was traveling previously.   In this case specifically the sugar market appears poised to show whether recent price strength has been related to short covering alone or there is an underlying fundamental reason for sugar to trade higher. If the funds continue to build long positions and price stalls that could indicate that the market is having trouble finding a new, higher trading range.

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.

Sugar March ‘18 Daily Chart

Sugar Mar '18 Daily Chart

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Softs - Cocoa

Tough Week for Cocoa Market

The cocoa market has had a tough week as private forecasters continue to feed the trade information on what we can expect going into the next few months.  As we go into the month of December I am reminded how this is the time when the market can turn on a dime on weather projections and currency instability.  A great example of this can easily be illustrated on how we have traded over the last 48 hours.  Currently the market is trading lower, about 40 ticks, at 2066 after yesterdays close just above 2100.   This is rather surprising after yesterday’s bounce of over 60 ticks on forecasts published by Olam that we would have lower cocoa yields at the end of the upcoming growing season.  Interestingly, the weather has been good so far in the growing regions of West Africa.  However, if consistent rains continue to fall on West Africa there is always fear that one could see damage to cocoa currently in storage due to a lack of proper infrastructure. Furthermore, a strong British Pound is also putting pressure on the price of cocoa.  As the currency continues to build value it pushes the price of cocoa lower as it makes it more expensive to foreign currency holders.  The pound has been building value since the first of November.  I would urge traders to keep a keen eye on any changes to weather over the next six weeks.  I would argue that we still have the potential to retest the March high before the end of January.  Resistance on the March Cocoa is at 2115/2150 and Support is at 2060 and 2040.

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.

Cocoa Mar '18 Daily Chart

Cocoa Mar '18 Daily Chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 12/01/2017

Stephen Davis

Steve discusses the grain futures markets with weather in South America and the need for strong export demand. 

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

USD and Yen in Focus

John Caruso

Reviewing the past few weeks in the USD vs EUR trade, the action has been undoubtedly bearish.  Recently, within the past three weeks, we’ve seen the positive correlation shared between the USD and US Stocks since late August, reverse.  A string of softer readings in US Durable Goods Orders, and inflation has underpinned the USD as of late.  The market is watching the Senate vote on Tax Reform very closely, and a passing of the Bill could reignite the upside in the near-term.  Furthermore, the FOMCs interest rate hike decision on Dec 12th will also be in focus.  Both Tax Reform and FOMC policy could certainly be near-term catalysts for the bulls, we’re watching the 94.50 area on the charts which likely serve as significant overhead resistance for the bulls, while 92.42 will be key support. 

Japanese Yen remains out of favor this morning, but did see a very healthy technical bounce off of trend support at 87.50 to 90.29, highlighted by us three weeks ago.  A softer reading in Japanese Retail Sales early on this week, and a lack of “safe-haven” demand, keeps the yen on a downward track this morning.  However, we’ll keep a close watch for another test of trend line support at 87.90 and an ear to the ground for fundamental support, as another buying opportunity.  Trend Support comes in at 87.90. 

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.

Japanese Yen Weekly Chart

Japanese Yen Weekly Chart

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Interest Rates

Yellen Bids Farewell

In what may be one of her last public appearances before stepping down as Fed Chair, Janet Yellen made some very upbeat remarks about the US economy.  Of note was her remark that this strength will warrant continued interest rate hikes.  Treasury bonds have taken those words to heart Wednesday as illustrated by over a full point fall in the December 30-yr bond future contract.  This move puts the price at 153’07 down about 7 tenths of a percent.  The yield, which moves inversely to price, sits close to 2.82 percent, up from 2.765 the day before.

On the economic front Gross Domestic Product expanded at 3.3 percent in the 3rd quarter. This was the quickest pace of growth in 3 years.  Economists are looking for a solid 4th quarter as well, in between 2.5 and 3 percent.

As mentioned in my last article, bonds are trading in a current range with 154-155 being the top of the range, and 150-151 being the bottom.  It was also mentioned that traders should look to get short exposure near the top of the range.  That still stands as the technical picture shows formidable resistance at the top of the range.  There are various options and futures strategies that can be implemented, depending on risk tolerance, and profit objectives.

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.

30-Year T-Bond Dec '17 Daily Chart

30-Yr T-Bond Dec17 Daily Chart

 

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Equities

Dow Approaches 2400

Jeff Yasak

Global equity markets were mixed Wednesday night with Pacific Region stocks softer and some European indices trading higher.  Despite increased two-sided volatility in the NASDAQ this week, most equity market measures are at or near new all-time highs in the early Thursday US trade.  However, the markets appear to have balanced the overbought technical condition from the November 28th explosion with 24 hours of uncertainty on the charts and that could pave the way for even more gains directly ahead.  The bull camp is clearly benefiting from a convergence of positive themes with tax reform progress hopes very high, US scheduled data coming in better than expected and talk this week that the Yellen recovery is broadening.  As indicated already, the markets uncertainty over the last 20 hours of trade could have balanced the overdone technical condition enough to set the stage for even more impressive upside work later Thursday.  However, the fly in the ointment for the bull camp in the E-mini S&P could be the PCE inflation readings later Thursday morning as the Fed Beige Book Wednesday seemed to rekindle rate hike discussions and that could be an element that is up to the task of derailing the bull market.  Support comes at 2625 with 2642 as first resistance.

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.

E-mini Dec '17 Daily Chart

E-mini S&P 500 Dec 17 Daily Chart

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