December 15, 2017

Volume 11, Issue 50

Feature Article

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Metals - Gold

February Gold, Expect Another Leg Down?

Joshua Graves

February Gold has seen quite the pullback, but a recent bounce should give traders an opportunity to consider selling into. Let's build the case for gold pulling back once more. The most recent economic data suggests that the economy is not only fine, but flourishing. Jobless claims, and business optimism suggests that there will be more of a flight from safe haven assets such as gold, and a push into more “risk on” assets. There is a slight bull edge recently with the Alabama election win for a Democratic senator suggesting that the edge in the Senate will make passage of any future laws that much harder for the GOP. This could potentially disrupt the massive run in equity markets over the past year. You are seeing minimal buying interest in gold as North Korea continues to pursue nuclear weapons, and rebuffing an attempt to “just come to the table” as Secretary of State Rex Tillerson has asked. It looks as if any hopes of a diplomatic solution are fading by the day. For the most part, the fundamentals all suggest flight from the precious metal over the next few weeks.

A technical perspective on gold will review a much murkier picture. We did bounce off minor support around the 1235 level, however, a retest of 1215 is much more likely than a bounce to 1280 where the 200-day moving average sits. There is not much in terms of support until we reach the July 10th level of 1214.50. Traders should be aware of this and average into the trade if they are looking to play a downside move. There are conservative ways to trade gold without using outright futures as well. For more information on how to trade gold, please contact me directly.

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_Feb18_Daily_Chart

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Metals - Silver

Silver Technical Bottom?

Eli Tesfaye

March silver is trading 16.040, up about 10 cents on the day. The aftermath of Fed rate decision, silver looks to have found a bit of a technical bottom. What I see impressing this morning is that silver is moderately strong even in light of bullish dollar price action. In a broader term, silver could benefit from a friendly tax reform that would increase demand for its industrial use.

Silver is modestly trading higher with a technical improvement from a recent 1 dollar break in price. These days the only time you hear about silver is its reference to Bitcoin (Litecoin). As in Bitcoin is to gold, litecoin is to silver. Commodity markets have lost some lust as the result of Bitcoin mania. 

The Commitment of Traders with Options report (COT) released today will probably show increasing non-commercial and non-reportable traders are adding to their net long positions from the week ending December 8, 2017, No doubt that the bull camp needs a farther catalyst to drive price higher. Decent correction in equities and fresh geopolitical concerns in hot spots around the globe could push price higher. 

Bargain hunters can ease into the long side from these levels with a tight risk. As I have stated before though, 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 16.50 should signal that near-term lows are possibly in. I expect to see strength in silver in coming days.

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 240min Chart

Silver_Mar18_240min_Chart

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Energies - Crude Oil

Is WTI Crude out of steam!?

With the whole world turning its eyes to crypto currencies, real tangible assets have taken a beating over the last few months.  The exception to this trend, are energy products, being led by WTI Crude in the near term.  There is a strong trend in the adoption of crypto currencies, particularly Bitcoin, and this coin actually creates very real drain on the energy grid; therefore energy products may be in higher demand, as crypto currencies consume large amounts of energy.  With that being said, there is still very real demand for WTI crude being confirmed by the EIA petroleum status report (from Wednesday, December 13th), which has seen 5 million barrels draws for two weeks in a row.  This week’s reading of -5.1 million barrels, is only slightly weaker than last week’s draw of -5.6 million barrels.  On the other hand, and slightly worrisome, Gasoline inventories saw builds (6.8 million barrels last week, and 5.7 million barrels this week).  Even though this is a signal for a slowdown in petroleum consumption, it’s more than likely the result of refineries increasing capacity to meet a future jump in demand.

From a technical perspective, WTI Crude has been caught in a generally tight range over the last month.  Trading between approx. 59.00 to the upside, and approx. 56.00 to the low side, the current front month future finds itself right in the middle.  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 his 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 Continuation Chart

Crude_Oil_Daily_Chart

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Energies - Natural Gas

Bears Control the Natural Gas Market

Jeff Ratajczak

The bears have a firm grip on the January natural gas market. The overall trend is clearly down. We’ve broken through the multi-year low from February of 2016 of 2.720 and the selloff continues. Pivot point calculations have support at 2.659 and below at 2.623. A close below 2.623 may signal sub 2.500 declines with 2.492 a realistic down side target. All short-term averages (9, 18, and 27) are trending lower, with momentum studies (RSI, MACD, and Stochastics) confirming direction. They are also dipping into oversold territory, until we see divergence between price action and momentum the current trend should continue downward.

Warmer weather going into the weekend should curb some of the heating demand – winter is taking its time arriving this year. The Midwest should expect above freezing temperatures through the next week with colder weather forecasted for the last days of the year. This might temper the selling over the coming week. A draw of -55 bcf is the expected weekly storage number. This number is above the 5-yr average of -79 bcf draw. The market is trending lower. I’m bearish until I see a reason, technical or fundamental.

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_Jan18_Daily_Chart

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Softs - Sugar

Bottom of 7 Month Range. Bounce Required?

Joe Nikruto

This week’s comment finds the March sugar futures contract trading near steady after six straight sessions lower.  Sugar has dropped from 15.49 to 13.70 in one week but open interest is increasing.  The fundamental story, more supply/surplus, has come into focus again across the wires. Interestingly, soft commodities such as cocoa and coffee have seen a downdraft to new lows or near new lows. This could be year-end position squaring by large participants or just the realization that there is ample supplies of these soft commodities.  Either way, the reality we see on the chart shows the March sugar contract is now squarely in oversold technical territory.  A bounce to 14.50, the 50-day moving average comes in near 14.57, is certainly in the cards. Sugar has found support in the 13.50-13.70 area four times in 2017. There are projections for surplus in 2018 and more balanced supply/demand in 2019 but sugar remains mired in a range between 13.50 and 15.50. Trend followers have been on the losing side of this lateral chop in sugar while traders willing to take counter trend positions at the top and bottom of the range likely have been rewarded. Look for sugar to bounce back to at least the middle of the range.  Aggressive traders could use February calls to position for a move back to the middle of the range at least. The Feb options do not expire until the middle of January and give traders four weeks to position for another whipsaw.

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_Mar18_Daily_Chart

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Softs - Cotton

Bullish Cotton Techs Intact Above Minimum $0.7275



Thursday's overnight break above last week's 74.28 high reaffirms the developing uptrend and leaves Tue's 72.76 low in its wake as the latest smaller-degree corrective low the market is now minimally required to fail below to stem the rally, confirm a bearish divergence in momentum and expose at least an interim correction if not a broader reversal lower. In this regard we are considering 72.75 as our new short-term but key risk parameter from which a still-advised bullish policy and exposure can be objectively rebased and managed.

The uptrend is clear and present in the daily log scale chart below, with threats to the bull equally clear in the forms of:

  • the developing POTENTIAL for a bearish divergence in momentum
  • the market's proximity to the extreme upper recesses of a range that has dominated price action for 16 months in the Mar contract and
  • the prospect that the market is near the end of another 3-wave sequence up from 20-Oct's 66.75 low similar to Jul-Sep's preceding rally.

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

Cotton_Mar18_240min_Chart

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Softs - Cocoa

Tough Week for Cocoa and More Hurdles to Come

The cocoa market closed on Thursday under 1900 leaving many in disappointment. A tough week for cocoa, as we came down and tested the contract lows for the month of March.  Many are now speculating that investors who took profits on the way down may be compelled to buy back in at today’s lower values. Granted, although news has been light, the idea that we still have many hurdles to get over before the next crop is counted in the spring is an important consideration.  Factors such as weather, infrastructure, or the final yields all will likely be up for debate as we price cocoa going into the New Year.   I would argue that it is of no consequence that officials in Ivory Coast believe there will be no shortfalls.  We still have to consider that cheap cocoa does not entice producers to spend money to lose money if prices remain the same.  I would urge the trade to consider the contract lows in March as a great risk point.  We would likely need to hear that demand has completely dried up in order to push the market lower.  Current resistance numbers stand at 1910, 1927, and 1948.   Support stands at 1860, 1850, and 1815.

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_Mar18_Daily_Chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 12/15/2017

Stephen Davis

Senior Market Strategist, Steve Davis discusses the grain futures markets with the WASDE Report, rally in soybeans and Goldman Sachs Report. 

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

Can the Yen regain status among world currencies?

John Caruso

I’ve written about the Japanese Yen for the past few weeks and its ability to survive this endless run higher in both US and Japanese Equities.  As we all know, the Japanese economy carries an outrageous Debt to GDP ratio which has largely turned off speculators in the long Yen vs. USD trade.  However, recent GDP and Inflation readings are suggesting there may be some value in Yen moving forward and may be able to regain some “safe haven” status in the New Year.    

Japan GDP:

Q/Q:          0.6% vs 0.3% prior

Q/Q SAAR: 2.5% vs 1.4% prior

Year/Year:  2.1% vs 1.7% prior

Japan Producer Price Index:

Month/Month: 0.4% vs 0.3% prior

Year/Year:           3.5% vs 3.4% prior

From a technical perspective, the Yens ability to hold its long-term trend line support line at the 87.50 - 88.00 area, also keeps me interested in trading the upside in early 2018.  While we’ve largely been trading sideways in Q4 ’17, and we may be near-term overvalued at present levels (89.65 March basis) we’ll keep an eye out for Key Support at 88.30-88.00 (March basis) for bullish opportunity’s in the Yen.  

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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Equities

FOMC Meeting Looks to Encourage Equity Bulls

Jeff Yasak

The Global equity markets were generally weaker Wednesday night with the RTS index and the Hang Seng markets bucking the trend with gains.  The bulls remain in control into the start of another trading session as the passing of the long feared FOMC meeting looks to encourage the bull camp.  In fact, given that the Fed seemed to lower the number of projected rate hikes next year from four to three that seems to renew the hope for low rates for a moderate period of time ahead and that clearly is a good environment for equities.  As indicated already, the path of least resistance in the mini S&P looks to remain up with the hope of tax reform keeping a positive influence on the market.  Buying support in the March E-mini S&P today is seen at 266325 and initial resistance is seen up at the old high of 267550.  Prior to the Fed meeting, positive data might have been seen as a negative for equities, but now that the rate hike is reality, stocks might prefer to see better data and with this morning’s claims expected to notch higher that could result in a modest corrective dip early on.

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 S&P 500 Mar '18 Daily Chart

E-mini_S&P_Mar18_Daily_Chart

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