December 22, 2017

Volume 11, Issue 51

Feature Article

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Trading Volatility with Options

Trading Volatility with Options

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Metals - Gold

Have precious metals become physical demand driven markets?

Tony Cholly

Global equity markets were mixed overnight with Chinese and European markets lower, but gains posted in Australian and Russian markets.

While we are somewhat skeptical that the force behind the gold rally of the last two weeks has been the result of improving classic physical commodity demand prospects, there is not a safe haven argument in position, nor is there definitive enough weakness in the dollar to suggest something else is lifting prices.  It is possible that the $75 washout from the November 27th high put the gold market into a cheap zone.  In fact, the net spec and fund long in the gold market on the November/December break saw liquidation from a lofty 257,000 contracts down to 119,000 contracts as of December 12th, and that probably balanced the market and set the stage for some bargain hunting buying on the dip below $1,240.  While we have indicated our skepticism on the bull case, the market would appear as if it is capable of returning up into the trading range that held the market in from late September until early December.  Therefore a move back into 1275-1300 is likely with critical pivot point pricing in the February gold contract seen at 1267.

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.

Gold Feb '18 Daily Chart

gold_feb18_daily_chart

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Bitcoin

Bitcoin Interest is Growing

Phillip Streible

It’s been an exciting week for Bitcoin with volume averaging about 600 contracts per day on the CME and I would expect over the next few weeks’ volume and open interest to significantly pick up. There’s two main catalysts for this with the first one being margin requirements. Most firms are still maintaining margin requirements well above exchange minimums keeping participants out. I would expect margins to slowly decline to exchange minimums over time as the contract stabilizes. Secondly, hedge fund participation should drastically increase in the coming weeks. Until recently hedge funds paid little attention to the cryptocurrency but now the rollout of the five bitcoin contract and volatile price action should attract more participants. Hedge funds have been searching for products other than stocks and bonds because of the low volatility in bonds and the high valuations in stocks.

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.

Bitcoin Jan '18 Candlestick Chart

bitcoin_candlestick_chart

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Energies - Crude Oil

Crude Oil range bound or flagging?

Michael O'Donnell

While this may sound redundant, crude oil continues to see the same range of trading as the past month, remaining for the most part in the $57/barrel range aside from brief dislocations with a $56/barrel and $58/barrel handle. 

It is interesting to note that since the passage of the tax bill and this week’s EIA report showing yet another draw in inventories, the market has been bid among the resumption of the forties pipeline and talks of Russia and Saudi Arabia possibly abandoning the OPEC production cut quotas in the future.

For traders looking to buy the rip and sell the dip, crude has likely been friendly with this range bound action and mean reversion and short term dislocations.  As we have previously noted, OPEC wishes to maximize price without bringing in too much competition from shale producers.  Some reports this week have noted the increase of shale production, which, when factored in with the prospect of increased global growth amid tax cuts and inventory draws, could favor the bull case, in addition to increasing uncertainty in Venezuela.  The bear case may note a reversion to the mean and increased range bound trading.

Those trading calendar spreads in the futures contracts have also likely noted the basis narrowing over the past month between the front month and further out summer months.

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.

Crude Oil 240min Chart

crude_oil_240min_chart

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Energies - Natural Gas

The Overall Trend is Still Down for Natural Gas

Jeff Ratajczak

Yesterday’s close lower signals for a probing lower, searching for bottom.  Support can be seen near the 2.500 mark.  Resistance just below 2.800, above Monday’s is seen as a corrective high to turn the major trend.  So far, today’s candle looks promising for the Bull camp, new lows were reached, but price action seems to be trying to fight back toward yesterday’s close.  Momentum indicators are bottoming.  Divergence between the indicator and price action may accelerate the upward move.  The large short position cautions that if buy stops start getting hit beware of a quick move in the opposite direction.

I’ve seen estimates for a very large draw (-160 bcf).  A large draw may serve to balance December supply and demand, and drive prices back to a higher range.  A smaller than expected draw might send prices tumbling for another day.  Below normal temperatures are forecast for the end of December.  It seems that old man winter will finally arrive.  A cold extension to the longer term forecast could send prices back to the 2.900 to 3.000 range.  I’d like to be long once divergence is confirmed.  Careful bullish exposure through option and spreads might be warranted. 

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 Feb '18 Daily Chart

Natural_Gas_Feb17_Daily_Chart

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Softs - Cocoa

2018 to Bring Bullish Market Back in Cocoa

Peter Mooses

Early December trading brought a drop in March cocoa prices. Since then, the market has consolidated due to the lack of supply or demand news support. Traders have taken short-term positions during the last month of the calendar year as we await more long-term outlook news from key producing regions.

As we head into 2018, stronger demand appears to be headed into the cocoa market. Specifically, European demand is set to increase. The euro and pound are also providing support in this region. West African production levels should be down in 2018. Weather premium will be added to the market. Damaged cocoa trees due to age and La Nina will also help boost prices due to lower output.

Before the market can go up, look for some liquidating going into the holidays as traders head to the sidelines. As far as 2018, prices should head back up to the 2300-2400 range if cocoa beans are potentially damaged as anticipated.

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.

Cocoa Mar '18 Daily Chart

cocoa_mar18_daily_chart

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Softs - Coffee

March Coffee Bearish Outlook

Adam Tuiaana

March coffee is seeing a bit of support this morning from what may be a short covering rally. Coffee prices continue to be pinned down by a reported huge Vietnamese crop. The Hightower Group has reported that analyst feel the Vietnamese crop “will be close to a record”. Coffee prices will need some solid demand strength and supply news that falls short of said expectations. Some feel that coffee prices are oversold, and due for some kind of pullback to the 125-135 range, which coffee prices had been in throughout most of October and November. However, we cannot overlook that fact coffee prices not only violated the 125 range low, but also managed to violate the 119 critical support low from June. Yes, coffee prices have been able to hold some support, but traders should assume that follow through selling is on the horizon. Consider buying put options with strikes below the aforementioned critical low of 119. On this rally, you should be able to get them fairly cheap.

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.

Coffee Mar '18 Daily Chart

Coffee_Mar18_Daily_Chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 12/22/2017

Stephen Davis

Senior Market Strategist, Steve Davis discusses the grain futures markets. 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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Equities

Stocks Mixed to Kick Off Trading Session as Cryptos Collapse

Bill Dixon

The four major indices are all just a bit on one side or the other of unchanged in the early going of today’s trading session.  The biggest news of the day however is the drop in bitcoin and other crypto currencies, most of which are down over 20% on strong volume.  Durable goods came in on the lower end of the expected range at only 1.3%.  Consensus was up at 2.0%.  Personal incomes and outlays also came in on the lower end of the expected range at .3%.  Consensus was .4%.  While both numbers came in a bit below expectations, most would consider both readings to be positive overall.  New home sales came in well above the expected 650K at 733k.  After a 685K reading on the last report, this data continues to come in strong.  Consumer sentiment on the other hand came in weaker at 95.9 vs. an expected 97.0.  While this is the lowest reading we’ve seen in a few months, the data is still relatively strong overall.  We’ll see how the rest of the day plays out, but volume is expected to be very light.  I hope everyone has a great holiday weekend, and we’ll pick it back up on Tuesday as markets are closed Monday.

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.

E-mini S&P Mar '18 Daily Chart

e-mini_s&p_mar18_daily_chart

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