March 9, 2018

Volume 12, Issue 10

Feature Article

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Metals - Gold

April Gold: Are We Cracking 1300 Soon?

Joshua Graves

April gold has seen range bound trade for months now and has very clear areas of support and resistance. Right now, April gold is trading around 1317, down 5 on the day. Looking at where gold is likely to find support is around the very psychologically and technically important level of 1300. This also marks the 200-day moving average. A drop to around 1292 also marks an important level where a 62% retracement level drawn from the December 12 low to the January 25 high would come into play.

If you look at where gold could go from here, bearish factors would include a lack of volatility continuing minus the February selloff and a lack of any war rhetoric from North Korea after Trump has agreed to sit down with the leader. Inflation is expected to be a very real issue this year, and if the Fed steps up to increase interest rates higher than three times we could see gold come under very real pressure. On the contrary, we could see the opposite if interest rates are being raised at that rate it could indicate a very toppy stock market and a flight to safe haven assets such as gold could result. Another bearish factor we must consider here is with Trump imposing strong tariffs on steel and aluminum from countries around the world we could see a slowdown in global growth based on a trade war. China is sure to be the top target on the list with the highest US trade deficit, and their retaliation could be quite burdensome for the US economy.

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 Futures at Shinny Cross Road

Eli Tesfaye

May silver is trading 16.44 down about 5 cents on the day. In previous articles I discuss the potential of silver bottoming. The strength of the dollar has kept silver bulls from making a decisive breakout to the upside. Technically, neither the bulls nor the bears have a real clear advantage at this time. Metals, especially silver, are still holding on tight consolidation in a range type of price action between 15.00 and 18.00. Seasonal trends have silver favorable to the upside. Since silver is in non-trending “choppy” price action a breakout strategy using options with limited risk might be ideal.

With positive Employment Satiation number this morning, silver didn’t wash down hard in anticipation of more rate hikes in the coming months. The future impact of White House “trade war” would have on the silver market remains to be seen. One thing is certain, this Administration will bring a lot of volatility to the market place.

Near-term, from a technical prospective, a break above 17.00 will set a stage for near-term lows. Any break below 16.00 per close bases will leave the 15.50 range a downside target. Please call my office to discuss trade ideas. As I stated above, options could be the ideal vehicle to participate in the market with a limited risk. Also, silver has a 1000oz contract that you can test the water without tying up too much capital.

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 Weekly Chart

silver_weekly_chart

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Energies - Crude Oil

Is the Top in for WTI Oil Futures?

In what is now the second week of inventory builds, the EIA Petroleum status report saw a 2.4 million barrel increase, compared to last week’s 3.0 million barrel build.  The increase in WTI inventories could be a result of the ability for US production, particularly from the Dakota and Oil Sands, to increase with the favorable (above $60) prices.  I have talked extensively in the past on why the $60 to $65 price per barrel threshold is significant for multiple stakeholders and producers in the global crude oil complex.  It almost entirely comes down to the profitability to produce oil, and the $60 to $65 per barrel threshold is the cost for most wells less than 30 years old.  The higher costs associated with younger wells, is due in part to a higher employment cost, drilling and surveying costs; for a new well none of those costs have been recouped yet.

With the increase in oil production, as well as a clear week-over-week build in inventory numbers, the reversal lower for oil prices (and range bound price action between $65 and $60), is basically in line with expectations of a fundamental force at work.  While a Fibonacci support zone has already provided a bounce from the $58.50 to $58.00 inflection zone (blue boxes on chart), however, now the market has also held resistance into the $64.00 to $65.00 area.  Upside technical targets form $58.00 could take the WTI crude price to the $68.00 to $70.00 objectives, but with price holding below $65.00 there is a chance to break back below $60.00 at this time.  Below the $58.00 inflection zone, are the $54.50 trend line and Fibonacci 100% extension inflection zone, as well as the much larger $46.36 full 50% Fibonacci retracement inflection zone.  Either of these supportive areas would be logical downside targets if the price of WTI crude breaks lower.

In my opinion, the rally that took WTI crude prices to the $66.66 continuous contract highs into the end of 2017 and start of 2018 is (still) taking a mild pause.  Fundamental supply and drilling ramp ups, along with the return of the Keystone Pipeline, are reason to believe there is healthy and ample supply in crude inventories to keep prices capped.  Of course there are black swans that could change this dynamic in a second (i.e. war in the Middle East, or a shutdown of the Keystone pipeline again), but it’s important to remember a market’s ability to remain irrational for longer than your account can remain positive.  Look for WTI crude oil prices to remain stagnant in this $5.00 range in the near-term, and look for early indications of the markets ability to break out of that range.  The market will resolve itself one way or another (on a long enough timeline), and it is up to the trader to define risk and carry their trade to target after confirmation.

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

Sugar Carves Out New Low to Set Stage for Lower Range

Joe Nikruto

This week’s comment finds the May sugar futures carving out new lows for the move in convincing fashion. After the move to new lows last week, the May contract reached 12.84.  The immediate way the market rallied back to a high of 13.80 suggested there was an argument for a bottoming sugar market.  A quick look at the chart below shows that argument has been weakened to say the least. May sugar closed at 12.82 and traded as low at 12.76 effectively putting a lid on any talk of a market bottom for now. Huge volume, over 100k contracts, and new lows for the move can be countered by pointing out the massive fund short position and oversold technicals but not really. Right now, the chart is telling us all we need to know. The global over-supply situation is forcing the market to find a new, lower equilibrium price.  How far down is that price? How much has sugar been held up by crude oil strength and long-term investment/inflation hedge ideas?  The sugar markets 13.00 to 15.00 range for the last year has not been enough to discourage production.  For many traders it would be tempting to try and catch this falling knife.  A short covering bounce could put the market back near 14.00. I just can’t see what could inspire the funds to cover their short positions at this time.

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 May '18 Daily Chart

sugar_may18_daily_chart

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Softs - Cocoa

An Over Exaggerated Move in Cocoa

The cocoa futures continue to push higher this week surprising many on just how strong the current trend is pushing prices.  However, the biggest question on anyone’s mind is just how long this cocoa market is going to push higher.  I would argue that we have already reached a point where the market is going to have trouble pricing in more risk, unless we have more catastrophic news.  Currently, we have used catalysts such as hot, dry weather in Ivory Coast cutting production yields, Ivory Coast selling forward more cocoa than it now expects to produce, and finally the scrabble that this news has produced leading to end users paying anything to ensure that they have enough product to keep their production lines running later this year.  It is a mad dash for quality cocoa which has given the market over a 400-point bounce over the last 20 days and near 200 points of that was this week.  After such a move it is only natural to think that perhaps much of it has been over exaggerated.  I would not be so quick to accept that just yet.  However, I would start looking at the 2550 to 2600 range on the idea that we may have some profit taking after the market stabilizes.

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 May '18 Daily Chart

cocoa_may18_daily_chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 03/09/2018

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

ECB Highlights

John Caruso

Yesterday’s ECB meeting struck a more “Dovish” tone when all was said and done.  The euro market initially reacted to the ECB's removal of their “pledge to increase bond purchases (QE) if necessary.  The ECB also mentioned that QE is set to run until September of this year.  The euro erased it’s early morning losses and rose to 1.2453 (March basis).  However, during the Q and A session, Draghi lowered his inflation forecasts and further explained that he is ultimately dependent on the incoming data.  So with a “data dependent” Draghi, and slower PPIs and CPIs coming in across the Eurozone region, the euro took that as a potentially “Dovish” signal and erased its gains by nearly 150pts.  We’ve seen a notable slowdown in the incoming inflation data from Germany, and this morning Italian PPI slowed along with Czech CPI slowing y/y.  The euro closed out yesterday’s session at 1.2318, further confirming a “lower high” on the charts and an immediate term bearish set up for the euro.  Based on the slowing incoming European data coupled with the blowout US NFP data this morning (313K jobs created vs 205K exp), we believe the euro could trade back down to 1.2200 in the immediate term (1-2 weeks).

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.

Euro Mar '18 Daily Chart

euro_mar18_daily_chart

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Interest Rates

T-Bonds Range Bound

30-yr bonds have been hemmed within a three-point range the past month.  That is remarkably tight considering the twelve-point sell-off the bonds sustained over the previous two months.  There have been ample reasons for bonds to rally, including equity weakness and heightened volatility, but to this point nothing has offered enough traction to shift momentum to the upside.  This could be a telltale sign of a pause and consolidation before a resumption of trend.  On the flipside, bonds have had a huge move down since the Fed announced the QE program was over, and a short covering or value bounce would not be surprising.  However, as noted in the past several articles, the trend, and the path of least resistance is still down in bonds. 

Market heavyweights Bill Gross, Ray Dalio, Jeff Gundlach are all bearish bonds.  Whether or not you agree, it is always worthwhile knowing what the biggest players think about your particular market of interest.  Even if all the ducks line up in a row for a trade, it is still incumbent upon the trader to find the right timing, leverage, and risk parameters.  One can be right about the market, and still lose money if they get one of these variables wrong.

Looking forward practically speaking, the 30-yr bond, as mentioned, is rangebound.  It makes sense to continue trading the range with a bias towards the downside.  Meaning, look to short the upper end of the range, rather than buying the lower end of the range.  This is because bonds are in a downtrend.  The upper end of the current range comes in around the 144’16 mark in the June 30-yr futures.  Should bonds break out from the range to the upside, we could see a short cover rally up to the 148-150 handle, with 150 being a golden opportunity to reestablish short positions.  Depending on profit objectives and risk tolerance, traders can use futures or options, or spreads to establish positions.  Feel free to reach out for help fine tuning strategies to fit your particular trading needs.

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.

T-Bonds Daily Chart

bond_daily_chart

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Equities

E-mini S&P Takes a Breather Heading into Friday Reports

Jeff Yasak

Asian shares were mostly higher Wednesday overnight and were led by strong gains in Hong Kong’s Hang Seng and South Korea’s Kospi indices.  The latest Chinese trade balance numbers displayed a much larger than expected surplus that included lower than expected imports with much higher than expected exports.  The E-mini S&P has remained in a fairly tight range at the upper end of this week’s trading range, as if it is taking a breather before eventful sessions at the week’s end.  While the threat of tariffs still looms over US stocks, there appears to be some temporary exemptions for Canada and Mexico, which brought some relief to the market.  Strong Chinese export numbers may also reflect well on global growth prospects and help support stocks.  US data will be the center of attention as the latest jobless claims readings will set the stage for Friday’s US employment situation report.  Support is seen at 2698 with resistance at 2747.

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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This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

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