February 9, 2018

Volume 12, Issue 6

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Metals - Gold

April Gold, Retest of $1300 Coming?

Joshua Graves

April Gold has seen quite the trading range over the past few months. Mid December lows of around 1250 to just over 1360 at the end of January. The question is where do we go from here? Currently, April gold is trading around 1315, and has seen continued pressure despite an extremely volatile stock market which typically puts a bid into safe havens such as gold. At this point if you look at the technicals alone, you will see that the pivot point for gold lies around 1300-1305. This represents a 50% retracement from low to high. I would expect gold to test this level, and if it does not hold the 200-day moving average sits around 1292. A break through that level puts the mid December lows in the gun sights. Also, if you look at the ADX which measures the strength of the trend, with 50 or greater indicating a strong trend and 20 indicating a weak trend, the ADX currently sits at 36 which isn’t particularly strong (something the bears should consider). One way to trade gold would be to play this range between 1240 and 1360 which is simple to structure in terms of options trading.

The fundamentals of gold suggest lower prices as well. If you look at the favorable US data, the overall euphoria in the stock market, and the extremely high treasury yields (yields go up, bond prices go down) the fundamentals support much lower prices.

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 Apr '18 Daily Chart

gold_apr18_daily_chart

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Metals - Silver

Silver Bears Have Technical Edge

Eli Tesfaye

March silver is trading 16.220, down about 12 cents on the day.  My  last article, I discussed the potential of silver bottoming.  It looks like with the recent US dollar correction to the upside; metals are in defensive mode. Technical damage done to the silver chart puts silver in an oversold area on the daily bases. Seasonal tendencies have silver favorable to the upside. Strenght in the US dollar will dictate if  silver continues to see or not. My analysis shows that per close bases, if silver can’t manage to hold above 16.00 as the March contract winds down, more downside is to be expected. As I have written before “bargain hunters can ease into the long side from these levels (16.00) with a tight risk. As I have stated before 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.”

Bulls should be encouraged that silver is not melting down as equities are, but longs should still consider coming on a strength. A long-term chart shows silver is consolidating in a tight 18.00 to 15.00 dollar range. Trade outside of these ranges will probably cause silver to make a substantial move. 

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

silver_mar18_daily_chart

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Energies - Crude Oil

Crude Oil Corrects Post EIA Report

Michael O'Donnell

As the EIA Petroleum Status report was released Tuesday morning, crude oil was trading at $63.40 per barrel in the April contract.  While the previous evening’s American Petroleum Institute number showed a slight draw in inventories, the EIA number was bearish as there were inventory builds in crude oil, gasoline and distillates for the first time in weeks.

As this fundamental news was absorbed by the market, this also coincided with the contract being offered through a trendline drawn from the mid December 2017 lows as well as the lowest level the market had seen since January 18, eclipsing the low of that date.

The downward price action continues Wednesday morning as the contract trades near the $61.25 level, having traded as low as $60.86 earlier in the morning.  This marks the lowest trading of the calendar year as the last time the oil market traded below $61 per barrel was the beginning of the year when prices were headed upward.

Many also note the record longs in the commitment of traders which at times presents the possibility for stops to be hit should the trend reverse amid fundamental changes such as inventories shifting.  Calendar spread traders are also mindful of the effects of such changes in different contract 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 Apr '18 60min Chart

crude_oil_60min_chart

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Softs - Sugar

Short Covering or Technical Weakness in Sugar?

Joe Nikruto

This week’s comment finds a sugar market consolidating and switching between wire service reports of large supply and large fund short position.  The ‘risk off’ mentality and severe testing of trend followers, as outside markets react to the 10% correction underway in the stock market, may ironically be good for the March sugar futures.  The large short position held by commodity fund traders could be cannibalized as risk managers help traders under duress find profitable positions to offset in order to fund positions that are underwater. The Hightower group has done a great job of highlighting the possibility that South American producers could continue to shift from sugar to ethanol thereby reducing the supply of exportable sugar from one of the largest producing regions of the globe.  This is one bullish fundamental the market has been able to hang a hat on as we have worked higher but has faded as the crude oil market has also come under pressure. The March contract has done a good job of stabilizing and trying to retrace almost half of the recent move to new lows.  Still, with the March contract unable to close above the 50-day moving average, currently coming in near 14.17, this places some importance on holding the 18-day moving average, 13.48, at the time of this writing.  If the March sugar futures demonstrate an inability to close over the 50 or hold the 18 that would signal the price action from the last two weeks is merely consolidation and new lows are likely.

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 - Coffee

Are Higher Coffee Prices Around the Corner?

The coffee market has given us some great volatility this week.  However, I would argue the trade is not completely convinced that the go ahead has been given to drive this market back to levels not seen since the end of 2017.  I believe the trade should start taking into consideration the idea that coffee has attempted multiple times to make new lows and failed.  In addition, with news that most of the 2017 Arabica surplus has been reflected into the current futures price, it makes one think that higher prices are just around the corner.  The following chart reflects the markets inability to make lower lows after a long year of consistently lower prices.  I believe that this is due to the idea that global demand for coffee does not look to drop off in 2018.  Furthermore, as we consider that analysts are also pondering the idea of lower crop yields in 2018 this could only help push the market back into the 125 to 135 price range.  Should the market press and close above 12600 basis March this may be the catalyst to finally give the trade confidence to hold onto long positions in this market. 

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 May '18 Daily Chart

coffee_may18_daily_chart

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Agriculture - Grains

Is This a New Normal For Grain Prices?

After yesterday’s World Agricultural Supply and Demand Estimates, the general consensus has seen a stable or shrinking stocks (for corn, wheat, and beans), while trade has responded in kind, the market seems quite comfortable with current levels at this time.  There was not much “call to action” in part of the bulls, given the response from trade numbers, and the market seems unwilling to commit to changing its current price dynamics. 

Projected Wheat ending stocks were raised by 20 million bushels, siting that higher food use is being more than offset against lower export numbers.  The report goes further, adding that there is still an anticipation of exports improving in the near future, but reported U.S. ending wheat stocks of 1000 million bushels.  Wheat supplies also increased globally, primarily on higher production forecasts for South America and Eastern European “bread baskets”.  Global trade saw an increase as well, with the increased exports from Russia, Argentina, and Canada covered the reduction in exports from the EU and the United States.  Regional consumption and demand for wheat has also shifted, with Indonesia surpassing Egypt (the historical leader) in net wheat imports.

Corn’s projected ending stocks were reduced while exports revised higher, as the January WASDE suggested U.S. price competitiveness as well as reduced exports for both South America and Ukraine corn belts.  The net change resulted in U.S. corn stocks being revised lower by 125 million bushels from last month’s report to 2352 million bushels.  Global corn production is projected to drop by 2.3 million tons to 1321.9 million tons.  Lower production from Argentina (sighting persistent heat and dryness), and Ukraine are keeping production in a slump, and have the potential to create a larger demand for U.S. coarse grains.  The global corn balance sheet also saw a drop in ending stocks by 3.5 million tons from last month to 203.1 million tons.

Soybean’s projected ending stocks, like corn, were increased while exports revised lower to 2100 million bushels, down 60 million from last months report.   The net ending stocks for U.S. soybeans was reported as 530 million bushels, and is generally in line with many experts expectations.  Crush expectations remain unchanged, and soybean ending stocks were raised by 60 million bushels to 530 million bushels.  Global oilseed production was noted as being 1.5 million lower, with soybean production partially being offset by higher cottonseed crushing.  Global soybean production was reduced by 1.7 million tons to 349.9 million, unable to be offset by an expected rise in Brazils production to 112 million tons (2.0 million tons higher), with favorable weather conditions in Brazil keeping yields afloat.

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.

Corn Mar '18 240min Chart

corn_mar18_240min_chart

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Currencies

Continued British Pound Defines New S-T Bear Risk



Today's continued slide below Tue's 1.3836 low leaves yesterday's 1.4067 high in its wake as the latest smaller-degree corrective high the market is now required to sustain losses below to maintain a more immediate bearish count. In this regard that 1.4067 level is considered our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively rebased and managed.

From a longer-term perspective the current challenge is one of determining what previous bull move the current relapse is correcting. The bearish divergence in momentum in the daily close-only chart is clear, exposing at least the intermediate-term trend as down. Thus far however this setback falls well within the bounds of a correction of just the portion of the bull from 12-Dec's 1.3317 low close. The market is only now encroaching on the (1.3789) 50% retracement of this suspected 3rd-Wave component of the larger-degree 5th-Wave rally from 02-Nov's 1.3058 low. The market also remains above a ton of former resistance-turned-support from the 1.3575 / 1.3600-area from the entire 4Q17 shown in the daily close chart below.

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

pound_daily_chart

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Equities

Equity Bears Still Holding an Edge

Jeff Yasak

Global equity markets were mostly weaker with Japan and Russia being the exceptions.  The normal technical pressures on the equity markets were also fueled by comments from Robert Kaplan, the President of the Dallas Fed, who stated that they should continue to remove stimulus moving forward.  It is also likely that global equities are under some liquidation pressure because of the possibility of a US debt ceiling/government shutdown threat even though there are signs of negotiation and progress on that front.  The Dow Jones industrial average traded 500 points lower after opening just above the flat line. The 30-stock index also approached 23,778.74, its low for the week. It looks as if the aggressive volatility is set to extend and we can’t rule out at least a quick peek back below 2600 because of the looming uncertainty off the US debt ceiling battle.  In fact, even a recovery bounce back above 2700 means little in these current market conditions. Support comes in at 2649 with resistance at 2705.

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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