January 19, 2018

Volume 12, Issue 3

Feature Article

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Fundamentals of Energy Futures

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Metals - Gold

Gold Futures Could Lift All Commodities

Frank J. Cholly

The gold futures market has added a $107.00 of premium since the December 12 swing low of $1,238.3. The past two trading sessions have topped out at $1,345 and $1,344.5 stemming the upward momentum before the market could fill a gap that goes back to the weekend of September 8 to September 11. The gap is from $1,347.8 to $1,351.4. I think that after the $100 plus rally that a little pull back to test support at $1,320 is in order. The market may pause and consolidate another base at that level before moving higher again to fill the gap. The gold market will likely find some good resistance and run into some profit taking pressure from $1,350 to $1,360 range. Above $1,360 there is not much in terms of resistance until $1,400 level.

Much of the recent strength in gold has come from the dollar weakness and perhaps even a big melt down in the cryptocurrency sector. However, the technical action is very impressive for gold futures. I would not at all be surprised to see the buying enthusiasm in gold spill over to other “under-valued” commodities.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or fcholly@rjofutures.com.

Gold Feb '18 Daily Chart


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First Bitcoin Futures Contract Expires on Dip

Phillip Streible

This week was another volatile week in bitcoin futures trading with the first bitcoin futures contract from the CBOE expiring after the market saw its first dip below $10,000. News came that South Korea’s government and Chinese authorities are planning to block domestic access to trading platforms that allow trading. If this occurs we could see another move back below $10,000 and a decline in volume and open interest. It is expected that at least 10-20% of all bitcoin trading comes out of South Korea so this would be a big blow to the price action. 

I have included a chart of the front month futures contract with the downward sloping trend line since the start of exchange trading back on December 17th, 2017. Really, we would need to see a break through this trend line with a push back through $14,280 to start a new upward trend. At that point we could see a run made for the highs, but relaxation from Government scrutiny needs to occur in order to do that.

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 Daily Chart


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Energies - Crude Oil

Supply vs. Demand in Crude Oil

Michael O'Donnell

As of Thursday afternoon’s trading, the March 2018 oil contract has seemed to pause within its appreciation which began in June and recently marked a 3-year high.  What makes this most interesting is that Thursday’s downward price action comes after a number of fundamental bullish factors, such as:

  • delayed Energy Information Administration number which showed a larger than expected draw in inventories
  • the return to production for a number of shale producers and corresponding estimates on output
  • record longs in the commitment of traders

Perhaps the pause in buying may be attributed to OPEC being quoted through their monthly report stating “Higher oil prices are bringing more supply to the market, particularly in North America”.  The same report also notes growth in supply in the US, substantially more than in the recent past.

Going forward, traders will be eyeing if the continued growth in shale production and supply leads to further selling or if new highs are tested amid global growth and demand.

Also, spread traders will note the front month contract bidding oil out of storage as it trades at a premium compared to further out expirations.

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 Mar '18 Daily Chart


Crude Oil Mar '18 60 min Chart


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Energies - Natural Gas

Weather Moves Natural Gas

Jeff Ratajczak

Wednesday's bullish price action has turned the trend up in the short term. The pivot target just below 3.300 was hit and if that high holds we should see sideways action going into expiration. If Thursday's close is above 3.320 we could see extension to the 3.500 mark. Support on the nearby charts is a little above 3.120 or so, then again around 2.800 on a weekly chart. A close below 2.920 may signal a sell off back toward the bottom of the trading range. Momentum studies are in the overbought range on a daily chart. Once they turn it could signal an accelerated sell off.

Weather had everything to do with prices Wednesday. There were abnormally low temperatures across the Southern US. Record or near record lows were recorded across Texas, Louisiana, and Alabama. This shouldn't last beyond the weekend. Winter is releasing its grip in the Northeastern US, and temperatures in the short term forecast are above normal heading into the new month.

A -201 bcf draw is expected this week when the  storage number comes out. The average of the last five years is -203. I believe that the market is over priced and should sell off with an average storage number.

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


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Softs - Cocoa

Cocoa – Grind Data

Peter Mooses

The anticipation and release of Asia grind data has led the cocoa trade this week. Strong data continues to help cocoa move higher. Strong demand is needed in order to give the March contract support. North American data surprised – coming in 1.28 percent lower compared to the same period last year. Expectations were between 1-3 percent. This data release sent cocoa lower in Friday’s morning trade - touching 1916 in the March futures contract. Heading into the release - Thursday’s high touched 2011 in the March contract but pulled back as traders awaited the grinding data.

The futures appear overbought technically but traders have been waiting for the first data release of the year to guide their trades. The recent surge and post-Brexit vote highs in the Pound should move cocoa prices higher as well.

After the dust settles from the grinding data, look for a technical trade to take over. 2050-2115 is a realistic range for this time of year if supply and demand levels can even out.

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


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Softs - Coffee

Recent Selloff in March Coffee Likely to Continue

Adam Tuiaana

The fundamentals of the coffee market have been overwhelmingly bearish, evidenced by the consecutive seven days in the red, and kicked off by a large gap-down open on January 8. Most of the selloff seems to be related to the large crop outlook for that largest, and second largest producers of coffee in the world. The Hightower Group has recently reported that both “Brazil and Vietnam continue to weight on the market”. This, along with reported falling exports in Brazil will likely provide this already struggling market with continued bearish sentiment. Technically, coffee prices failed to challenge the 13135 level which had been good resistance. Even more importantly, support was not found at the 126 level, which had been a solid and formidable support for a while. It’s likely we will continue to see falling prices in March coffee, as nothing of any significant fundamental support exists at this time.

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


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Agriculture - Grains

Daily Market Update - Grain Futures - 01/19/2018

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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Agriculture - Livestock

Strong Demand Pushes February Lean Hogs Market Back to Highs

Wednesday we saw February hogs push to new highs with April hogs back up and testing January highs. This is due to bullish demand factors in recent weeks. While this is good news for the bulls, traders need to remain cautious on the outlook for a hefty supply ahead, which could turn the cash tone lower. According to the monthly USDA update, the USDA increased their 2018 pork production projection to an increase of 5.4% from 2017 and first quarter production is expected to be up 4% from last year. The bounce in pork product prices has helped provide underlying support. However, the supply outlook looks a bit burdensome in the weeks ahead. Traders should consider going long Feb lean hogs 67.00 puts from 40 points each and use an objective of 80 points for each or, 80 points on the first one and 190 points on the second. Risk 80. 

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.

Lean Hogs Feb '18 Daily Chart


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Major Trend Decisions are Possible Today in Dollar

Tony Cholly

Dollar: The headlines this morning trump the fact that the dollar is bordering on the lowest levels in three years and that action seems to be justified by the thread of a US government shutdown. However, as indicated in equity market coverage this morning, traders aren’t really expecting a shutdown. The bull camp might be somewhat relieved that the March dollar index has respected this week’s low in the early action today, especially with the headline pointing out the bitterness in the senate regarding the US debt ceiling. We see no reason to call for an end to the downward track in the dollar but we have to give some credence to the fact that prices have consolidated above the 90.00 level for four days. If the dollar stays below 90.58, it should remain in bearish trend.


Euro: The Euro has seemingly lost upside momentum and run into resistance just above the 1.2342 level this week. German PPI readings overnight were right on expectations and therefore are not a sustained influence on the currency today. There would appear to be critical support in the March euro at 1.2283 and the bias remains up, even if the trade appears to be poised to make an important “trend” decision in the near future. We suspect the euro will see favorable action early on today in anticipation of a protracted Senate debt battle, but that traders will ultimately book profits and move to the sidelines ahead of the weekend.



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Stocks Up Despite Senate Uncertainty

Bill Dixon

The trend higher is continuing this morning with the four major indices all posting small gains heading into the opening bell.  We had some mixed earnings results yesterday afternoon, but I’m not sure we saw anything negative enough to actually stop the upward momentum.  While much of the up move can be attributed to the business friendly stance Washington has taken, it appears the Senate may have some trouble coming to an agreement that would avoid a government shutdown.  Perhaps it is just posturing, but we’re getting dangerously close to our first shutdown since October of 2013. Considering how often it comes up and how rarely it occurs, I’m guessing we avoid the shutdown.  Aside from that, news is pretty light today.  Consumer sentiment and the Baker-Hughes rig count are about all we’ll see today, so barring any surprises or more news that we’ll actually see a government shut their doors for a bit, I think the trend will remain your friend. 

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 500 Mar '18 Daily Chart


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