January 12, 2018

Volume 12, Issue 2

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Metals - Gold

February Gold, will the up trend continue?

Joshua Graves

Feb gold has essentially seen consolidation sideways since the New Year’s trading began. It had its initial run up from the mid-December $1238 low. The question is, is there enough geopolitical turmoil and demand for gold that we could see another push toward early September highs of 1365? Let’s take a look at some positive fundamentals supporting gold right now. The most obvious is the very weak US dollar. It has recently collapsed to the lowest levels since September. Another supportive factor is the fact crude oil has pulled back even slightly this morning, yet gold continues to forge gains. This is clearly a supportive factor. A weaker than expected US PPI report, as well as an unexpected increase in unemployment claims rising by 11,000 are also supportive of the precious metal. Pressure could come into play with a clearly strong US economy, and hawkish minutes from the Dec 14th ECB meeting which was quite hawkish for ECB monetary policy. Another obvious, but less talked about factor was the North Koreans coming to the table to talk. This will most likely be a fruitless talk, but dialogue has started none the less.

A technical perspective reveals a healthy bull market, with the highest levels since September 15 being seen as I type. We had an initial run up, consolidation sideways, and now we are getting ready to make another move higher in my opinion. The MACD crossed indicating a buy when gold crossed 1265, and we have an ADX that is quite high indicating a strong uptrend.

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


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Metals - Silver

Bulls Have Technical Edge in Silver

Eli Tesfaye

March silver is trading 17.090, up about 12 cents on the day.  The last article, I discussed the potential of silver bottoming. It looks like the bulls have the technical edge and momentum has turned up. A weaker dollar gives added lift to the metals in general. Now that the tax reform is behind us, the next battle in Congress would be immigration and infrastructure spending. I don’t think President Trump will have a difficult time getting republican congress and some democrats to agree on shoring up the nation’s weak infrastructure. Othe markets benefiting from a weaker dollar index is copper. Both copper and silver have industrial use, therefore, will benefit from the infostructures spending.

Also, with the eurozone looking to tighten their monitory policy, the weak dollar leaves dollar-denominated metals in positive territory. As the cryptocurrency fever cools off a bit, silver is getting its opportunity to shine once again.  

The Commitment of Traders with Options report (COT) released today will probably show increasing non-commercial and non-reportable traders and will probably add to them. The last report, I mentioned that “bargain hunters can ease into the long side from these levels (16.00) 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 provide that near-term lows are possibly in. I expect to see strength in Silver in coming days.”

A pullback from these levels, 17.00, will be a buying rather than a selling opportunity! 

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


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Energies - Crude Oil

Will US Shale and Offshore Drilling Form the Ceiling For WTI Crude?

This week, WTI crude oil futures took off above the $60.00 threshold that has formed a considerable barrier (resistance) which has capped the price of WTI crude for the past few years.  With the price of WTI crude futures now breaking above resistance, traders should expect tests of broken resistance (now as support), and to look for signs of a broader trend reversal being underway.  Fundamentally speaking, there is still a perfect storm for crude prices which is causing a short term supply crunch.  With OPEC nations sticking to the cuts in which they agreed upon, and the Keystone Pipeline still running at reduced capacity, the WTI crude futures curve prices became inverted (backwardation began).  This occurs when front month contracts are bid up, as consumers need the oil now they are afraid they will pay more for (or won’t be there) in the future.  This concept is how a fundamental supply crunch is priced across the serial months of most commodities futures curve.  The cherry on top of this black-gold sundae, is the consumption from gasoline production (and the uptick on the Kushing pipelines draw).  This week’s EIA petroleum status report cited yet another drawdown in inventories, with crude stockpiles in the US dropping by -4.9 million barrels (and after last week’s impressive reading of -7.9 million barrels).

While the fundamental picture looks bleak for the bears, with crude consumption consistent, and inventories needing to be replenished, the technical picture may be calling for a short term pullback.  I personally see this event as more profit taking from the bulls, than a reason to be a net seller and try to pick a top.  In my last article, I discussed the various support levels that were proving the bulls’ consensus, and could take us to the 62.00 to 64.000 area for upside bull targets.  The market has inevitably proven the bulls’ case, and while I am still optimistic about continuation higher, it may be time for a test of broken resistance (old) now as support (new).  The Fibonacci support zone that begins at 58.22 is the first logical area of major support (below the obvious psychological support of the 60.00 handle).  I consider this last leg up in crude oil futures (from June of last year) still underway while above 56.60.  The ball is now in the bulls’ court, and it’s theirs to loose.

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


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Energies - Natural Gas

Option Strategy for Natural Gas Sideways Trend

Jeff Ratajczak

The natural gas trend has been travelling sideways for the last week.  The up and down prices this week have us balancing between a bull and bear market.   Momentum indicators are all around mid-levels and not much help in predicting direction.  A close beneath 2.700 will signal a turn to the downside.  Above 2.991 may take us to a range from 3.000 to 3.200. 

Today’s draw on storage of -359 bcf is more than the estimate of -318 bcf.  I think this may have been baked into the price already because of the frigid weather last week.  The milder weather this week should give way to temperatures back in the normal range for this time of year.  The nearby forecast calls for colder weather in the East and South.

Since the market seems to want to stay sideways, I’d like to talk a little about an option strategy that should be favorable in a non-trending market.  In this example, you can sell options above and below the current price.  I’m picking the strikes by prices I wouldn’t mind being long or short from.  I’m also looking for a decent amount of premium to collect.   At this time we would collect approximately $330 for the 2.550 March put and $600 for a 3.500 call, also for March.  As long as the price of natural gas stays between 2.550 and 3.500 we keep all the premium collected.  If we get assigned a futures contract at expiration, I won’t mind being long or short from the strikes.  We will also keep the premium collected as well as being in good position.  As long as the market keeps moving sideways in a range, this strategy should continue to be profitable.

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 Mar '18 Daily Chart


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Softs - Sugar

Sugar Can’t Break Out - May be Signaling Impending Break Down

Joe Nikruto

This week’s comment finds our March sugar futures contract back below the 50-day moving, 14.75. The close as of this writing showed March sugar futures at 14.61. This on a day when February crude oil made yet another high.  Wire services speak to the ‘trade’ waiting for index funds to show up as buyers.  A quick look at volume for the last three days shows they may have been wading in on the way down.  COT report from eight days ago says the funds are short but it is easy to guess that they may be getting shorter after the failure of the March contract to breakout to the upside. Trade continues to watch Brazil offtake of sugar cane for ethanol vs processing for sugar, and it makes for good comment, but that may not be enough to save sugar from the surplus that remains globally.

Sugar has done a great job of running up into the 15.00 level in the second half of 2017.  What appeared to be a labored bottoming process that would resolve to the upside has left the chart looking a little heavy. It has been difficult for directional, trend following traders to stay on the right side of a market that has threatened upside breakout one week and revisited recent lows the next. So goes trading. But the more often sugar is unable to hold above the 50-day moving average the more challenging the outlook for higher prices.  Notable television commentator and hedge fund manager out this week speaking on the tendency of commodities to rally during the late economic cycle period.  This is a compelling argument for commodity ‘investors’ to take long positions.  Or, begin to look again at trend following programs. Should inflation begin to take hold in any meaningful fashion commodities prices could rise across the board and investors would be wise to plan ahead. And, ultimately if the ‘synchronous global growth’ narrative holds true demand for commodities has to increase. But for traders, the tea leaves could be showing sugar marking time and renting shorter duration puts in anticipation of a move to the recent lows could make sense.

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 Mar ’18 Daily Chart


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Softs - Cocoa

Cocoa Lacks Direction Ahead of European Grind Report

The cocoa market has been trading with very little direction this week.  However, I am not too surprised as most people are waiting for the fourth quarter grind numbers to be released.  It is the grind numbers that usually give us a better idea of how much demand for the product has moved for the better or the worse.  We will get the first of such reports next week starting with the European grind.  The report is expected to show an increase of grindings by two to five percent.  The North American and Asian grinds are expected later next week as well.  Therefore, I imagine we will see a week of contract positioning ahead as any increase in demand should aid in higher cocoa prices next week.  In addition, as the trade does move to position their buys and sells in the market the technical numbers are going to be very important to everyone.  To the top side the market has some room to move to 1950 and 1965.  However, many will likely not be very impressed unless we can see a break above and settle above 2000 in the March contract.  On the opposite side of the coin, should cocoa prices falter we have some support at 1910, 1900, and finally the lows of the contract around 1862.  I would be surprised if we did fall, especially if grind numbers do show a decisive increase in demand. 

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


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Softs - Cotton

Waves, Momentum, Fibs & Sentiment Raise Odds of Cotton Top

As always, we are not in the business of top-picking. And indeed, on even a short-term basis, this market has yet to satisfy even the first of our three reversal requirements: a confirmed bearish divergence in momentum below either a prior corrective low or an initial counter-trend low. But for reasons we'll expound on below, traders are advised to have a heightened awareness of developing factors that we believe raise the odds of a peak/reversal-threat environment.

The 240-min chart below details the still-orderly and impressive uptrend from 20-Oct's 66.75 low. The RATE of ascent has slowed, but the market still needs to prove even short-term weakness by relapsing below an initial counter-trend low like Fri's 77.81 low. Ideally, a failure below 02-Jan's 77.30 corrective low would, in fact, confirm a bearish divergence in momentum sufficient to break the 2-1/2-month uptrend. In these regards and, again, for intriguing reasons we'll discuss below, we're considering 77.81 and 77.30 as our new short- and longer-term risk parameters to a still-advised bullish policy.

From an Elliott Wave perspective, we've labeled what arguably is a complete, extended 5-wave sequence up from 20-Oct's 66.75 low that "theoretically" may be considered complete. But with so many iterative steps up along the way, there's really no way to objectively conclude even an interim top until and unless this market proves at least short-term weakness below the bull risk levels identified above. This said.....

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


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Agriculture - Grains

Daily Market Update - Grain Futures - 01/12/2018

Stephen Davis

RJO Futures Senior Market Strategist, Stephen Davis discusses the grain market. 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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Japanese Yen Moves to Bullish Trend vs the US Dollar

John Caruso

The Japanese yen appears to be breaking out over an old swing high made back at the end of November 2017. I’ve highlighted a bullish view on the yen in my previous two articles, right about at the time Japanese GDP and Inflation gauges began to accelerate. My decision making process largely hinges upon both the growth and inflation outlook for a country and it’s currency. This is the best way to forecast what the next major move will be by central bankers, and in this case the Bank of Japan. The BOJ tweaked its monetary policy earlier this week by tapering its government debt purchases by $10 Billion. The highly in volatile and manipulated JGBs (Japanese government bonds) shot up 4 bps fueling the move higher in the yen. However, before we get ahead of ourselves, the BOJ is still the most accommodating central bank in the world. So yen bulls are still not out of the woods quite yet, but I do believe that this move by the BOJ sends a powerful signal to investors. Furthermore, according to CFTC reported positioning to start the week, the Yen was one of the largest consensus net short positions in the report. This is also a key signal we’ll watch for overcrowded positioning in the markets, which can support a sharp reversal in positioning if the fundamentals of the the market change even just the slightest bit.

Looking forward, we expect some back and fill in the yen as it signaled immediate-term overbought this week, but we will be watching the charts for more buying opportunities on pull-backs and, as always, we’ll let the fundamental research and data dictate the direction in which we position. First resistance is 90.50 and first support is 89.70.

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


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Interest Rates

25 Year Bull Market Over for Bonds?

Some high profile names chimed in on Treasury bond weakness yesterday as the front month 30-year futures had a two day washout from the 152 handle to the low 149 handle.  Bill Gross went as far to say the 25 year bond bull market was done, and it had entered a bear market.  Several factors have been at play since July of 2016 when 30-year futures hit their highs, and yields their lows.  Since then yields have climbed upward from a low of 2.11 percent to yesterday’s high in the 2.922 percent area.  According to Jeffery Gundlach a rise above 3.22 percent on the 30-year “would end the bull market for good.”

Several factors are at play, but the main ones have been in the news for months now, and remain relevant.  The Fed has entered a rate hike phase, and it is expected that three more hikes will take place this year.  The Fed has also begun to unwind their balance sheet, and central banks worldwide have either begun tapering or intend to taper bond and asset purchases. Inflation is looming.  Although inflation hasn’t been much of a factor, one of the main jobs of the Fed is to stay ahead of inflation and keep it near the target rate, which stands at about 2% a year. 

Technically, I still see the 30-year futures in a range it has been pinned in since Nov 2016 between the 147 handle on the bottom and 157 on the top.  The range has constricted over the last 3-4 months between the 149-150 handle and 155.  In the last several articles I have called for short exposure between 154-155.  That has been a correct assessment.  As of yesterday we took out the bottom of the recent range, getting as low as 149’03 on the front month March 30-year contract.  The previous March contract low came in at 149’07 on 10/27.  Technicians, including those close to Bill Gross, have noted that the 5 and 10 year bull trend lines have been broken on this latest sell off.  That bodes long-term ill for the bond market, but I think it may be a tad early to say the 25 year bull run is done for good.  However, the downside is definitely the path of least resistance, and there are trades to be made to take advantage of what may be one of the best opportunities of 2018.  Feel free to contact me to talk about those trades.

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 Treasury Bonds Monthly Chart


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