January 26, 2018

Volume 12, Issue 4

Feature Article

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Metals - Gold

February Gold, Buy the Dip?

Joshua Graves

February gold futures have seen a significant pullback off the high’s on a recent bounce in the US dollar. We have seen a number of reasons for the continued bullish trend in gold.  The first and most obvious reason for a push above $1,350 were remarks from US Treasury Secretary Steven Mnuchin’s welcoming of a weaker US dollar. A weaker US dollar, all things being equal, boost commodity prices across the board. It helps US origin commodities become cheaper to purchase and keeps us competitive in the world. Another fundamental reason for the push higher has been talk of inflation occurring should the economy remain as strong as it is. The real driver of this rally should not be overthought; it’s off of a very weak US dollar. There is some talk of a potential “trade war” with China or another country, but I believe this will not occur. China is too important to us at the moment, with the most obvious being keeping China on board for North Korea sanctions. February gold futures today have in fact bounced near the $1,340 level on weaker US GDP data coming in at 2.6% vs 3.0% expected.

The technicals on gold remain friendly. We approached overbought conditions, however, this recent pullback has helped build a case for another leg higher. Any dip in the market needs to be bought into. Look for strong support account $1,340 and a breakout above $1,366 will signal a breakout and potential run to $1,400.

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

A Strong Week for Silver

Michael O'Donnell

Wednesday morning, the silver market was bid following comments from Treasury Secretary Steven Mnuchin that a weaker dollar may be good for the United States.  For US exports and commodities such as silver, this was bullish news.  Many have noted the recent strength in commodity prices and dollar weakness, and this news only exacerbated such strength.

As of Wednesday morning, the March Silver contract was trading near the morning’s high of $17.445 per troy ounce, up $0.71 from the prior day’s low.  Many will note technical peaks neared from earlier highs this year and the highs from the second half of 2017.  The levels from Wednesday morning’s trade also coincide with a trendline drawn from August 2, 2016 highs and the high of January 16, 2018.  Along with these levels, a technician may note the gap at these levels from 2017’s September 15- 18 weekend just above and very near the highs of $17.45 on January 16, 2018 and October 13 2017.

While Wednesday’s dollar news and continued commodity strength, along with a breach of this trendline and these levels will have some looking to continued strength in silver, if these levels hold one must be mindful of the recent ranges and a reversion to the mean

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.

Silver Daily Continuation Chart

silver_daily_chart

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Energies - Crude Oil

Can US Oil Production Put Out Fiery Crude Rally?

This week, WTI crude oil futures have continued to prove better bid, and continued their rally higher with front month futures prices reaching a high of $66.66 per barrel.  With the price of WTI crude futures now breaking above resistance, traders should expect tests of prior broken resistance (now as support), and to look for signs of a broader trend reversals before looking for shorting opportunities.  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 now over two months of reduced capacity, it’s not surprising to see futures prices for crude oil continue to rise on the back of these fundamentally bullish events.  This week’s EIA Petroleum status report also helped support crude futures, siting a 1.1 million barrel draw to crude inventories.  This is down from last week’s substantially larger 6.9 million barrel draw, however without the main arteries to get crude from the wells to the refineries (pipelines) working at full capacity, continued drawdowns on crude stockpiles is expected.

While the fundamental picture looks bleak for the bears, as crude consumption remains strong, and inventories are being draw down and need replenishing, the technical picture is getting over bought into technical long target inflection zones (an area where longs might take profit).  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 prior articles, I discussed the various support levels that were proving the bull’s consensus, and could take us to the 62.00 to 64.000 area for upside bull targets.  Now that the market has cleared through to a new high of 66.66, the 67.00 to 70.20 target area is now in focus.  The market has inevitably proven the bull’s 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 59.17 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 57.40.  In the very short term, you can expect buyers while above the 63.00 area, and while above 63.00 I expect the market to continue higher to the 70.00 a barrel.

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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Softs - Sugar

After Dramatic Decline March Sugar Consolidates

Joe Nikruto

Is there a tradable bounce in the cards? The March sugar futures contract this week is attempting to stabilize after almost 12 straight days down. From a recent high of 15.37 to last week’s low of 13.02, the March contract has shaved off over two full points.  We have seen this kind of price action since mid- 2017 but this move is different in that a new low has been carved out, taking sugar to its lowest level in years.  This leaves the March sugar chart in vulnerable territory. A quick look at a weekly chart shows this market falling out of the bottom of a well-defined channel. Fundamentally the market remains under pressure as well. Widely trafficked and well known fundamentals include China’s decreasing imports, ever resilient supply from seemingly every corner of the globe and fund trader willingness to establish large short positions. Hightower Group, in their comment from this morning, highlighted the increasing open interest which they suggest speaks to the fund trader getting more short.  This could be the case. The often discussed Index Funds upping their sugar position may also be contributing to the increase in open interest. Either way, what we may be left with is a market that could be running out of sellers and a fund trader that is yet again at risk of being whipsawed.  This week’s COT report will shed some light on how short the fund trader category has gotten during the last few weeks.  Traders could position for a bounce with March options that do not expire until the middle of February.

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

sugar_mar18_daily_chart

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Softs - Cocoa

Technical Trade Leading Cocoa Market

Peter Mooses

After disappointing data from last week’s grinding info, March cocoa futures have consolidated. Asian grindings missed their mark; North American data continued on a negative path. Currencies are attempting to provide support for cocoa. A slipping dollar, a rally in the pound and a strong move higher in the euro may be what is needed to get the March contract back above 2000.

Technically, 1925 had been support – 1950 is the near-term support and 1995 is resistance. Although we are in a consolidated channel, the move is slowly moving higher.

Barry Callebaut’s quarterly results showed an 8% sales growth – this is well above expectations and can help the demand outlook in cocoa.

Closely monitor demand data from North America and Europe in the short-term to see if the technicals can get some support and assistance from global demand – these two moving pieces can help get futures prices back to the 2100 range as contracts will begin to move from March to May next month.

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

Sip Your Coffee While Waiting for the Next Big Move

The coffee market has been tied up in a relatively tight range the last eight weeks.  Values just under 120 and as high as 130 have left many bored with the market and others content with trading the range back and forth.  However, this is actually the time when many should be paying the most attention to coffee and perhaps the next biggest mover.  2017 was a difficult year for coffee prices as previous shortfalls in Robusta and questionable quality in parts of the Arabica regions left prices hovering near $2.00.  Most of last year was spent in a never ending downtrend that seems to have found a stable value around $1.20.  Now, the trade anxiously looks to the future and any possible catalysts that would give the price of coffee an excuse to run higher.   Currently, we are closely watching this seasons Arabica production which may fall short due to the quality of beans being produced.  Production at this point is forecast around 38 to 39 million bags, this down from the 16/17 output of 45.6 million bags.  Should these numbers hold or project lower it could be enough to push prices back into the 130 to 140 range.  Furthermore, the US dollar will also be key to how we value coffee.   If the US dollar builds significant strength in 2018 that could easily weigh on prices and mitigate any large price changes.   I would argue that using inexpensive Call options to take advantage of any move to 130 to 135 would be worthwhile. 

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.

Coffee Mar '18 Daily Chart

coffee_mar18_daily_chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 01/26/2018

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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Currencies

USD and EUR Likely Ripe for a Correction

John Caruso

The US dollar is giving us an “exhaustion” signal on the downside, but certainly not a reversal of the down trend.  If you measure and map the trade since Trump’s inauguration and “weak” dollar comments being good for global trade and business last January, we’ve been in a steady downtrend on the charts.  Conversely, the Euro has been in a solid uptrend since the beginning of 2017.  The European economy specifically the Northern states, have shown steady improvement and growth.  However, the boogieman of the Euro Zone is the low levels of inflation and the Southern states that rely on “weak” Euro policy as a subsidy.  The ECB has been tapering its QE bond purchases and strengthening is forward guidance on growth, and although we’ve seen an uptick in European bond yields, we’re suspicious as to how much further interest rates and subsequently the Euro currency can run.  Back to the USD; US Growth and Inflation have accelerated all of 2017, pushing bond yields higher, however the dollar has failed to move in step with rates.  With that said, we’re looking for consolidation in the USD in the near-term (we’re hesitant to call a bottom to this 1yr downtrend).  Within this potential USD/EUR consolidation we’re going to be looking at buying opportunities in the USD (so long as the data supports it, which it should) and selling opportunities on any “dovish” commentary from the ECB.  88.50-91.00 will be the immediate-term range we’ll be looking to manage in the USD, and 1.25-1.23 in the Euro. 

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.

10-Yr Technical Picture of the EUR/USD

euro_dollar_monthly_chart

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Equities

A Top Heavy Equity Market

Jeff Yasak

Asian shares were weaker, and were led by losses in the Nikkei due to the recent strength of the yen.  The GfK survey on German consumer confidence and the IFO survey on German business climate both came in better than forecasted.  European shares are having mixed results early with the German DAX under mild pressure, while the Italian MIB and Spanish IBEX 35 are posting moderate gains.  A highlight for global markets will come with the results of the European Central Bank’s latest monetary policy meeting which is forecast to have no change to either rates or policy.  The U.S. session will start out with a weekly reading on initial jobless claims that is expected to have moderate increase from previous 220,000 reading.

With a wide range outside day Wednesday, the market feels a bit top heavy and extremely overbought.  In fact, March E-mini S&P has closed higher in 14 of last 16 sessions.  Strong global growth prospects and strength in emerging markets are factors which helped support.  Traders seem to be growing more concerned with protectionist US policy could be a factor to spark a correction.  The trend remains up and bull camp has not been easily discouraged by trade war concerns, North Korea issues or even political wrangling in the US.  Support comes in at 2830 with resistance at 2876.

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 Index Daily Chart

e-mini_s&p_mar18_daily_chart

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