March 23, 2018

Volume 12, Issue 12

Feature Article

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Metals - Gold

Is April Gold Finally Going to Have a Breakout?

Joshua Graves

Gold has finally found its footing on what is an obvious slide in equities, and what could ignite into something much bigger than a tit for tat with China. Trump has fired what appears to be the first shots against China with a $60B tariff against all steel and aluminum products coming from China. They have retaliated in what looks like a restrained manner by imposing their own tariffs on $3B worth of US imports of fruit and wine. The much larger concern is that they have drawn a list of 128 products that are now potential targets of additional duties. Another reason we are seeing a flock to safe havens is that during the last FOMC meeting the fed indicated what could be construed as a dovish tone and brought the idea of more rate hikes than what was already expected to a halt. One last (and more recent as of this morning) reason to be bullish gold is that Trump has indicated he may veto a recent spending bill passed by the house that could potentially lead to a government shutdown!

The technicals of April gold look great for a bullish play. We saw an exact 50% retracement from the most recent low of 1242 back in mid-December, to the most recent high at the end of January at 1370. We now march toward the highs once again with 1360-1370 being strong resistance and 1300 being strong support and coinciding with the 200-day moving average. If this trade war is for real it could be just the beginning of a much larger upside move in gold.

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

Unlike Equites, Silver Futures are Not Melting Down

Eli Tesfaye

March silver is trading 16.600 up about 21 cents on the day.  In previous articles, I discussed how silver was putting a potential bottom. The May contract is bouncing off recent lows of 16.10. Technically, the near-term lows are in. A close above 17.00 will confirm the downtrend has come to an end. Recent headlines of potential “trade war” with China is giving flight to safety type of support to the metals in general. As also mentioned previously, longs should come on strength rather than pick a bottom. I think the recent strength in silver is a catalyst for higher price action. “with punch and counterpunch moves” of US and China, silver is getting an opportunity to shine once again. 

Bulls should be encouraged that silver is not melting down with equities, and “dips” would be seen as an opportunity to buy rather than sell. Remember silver has been in consolidation for a very long time as the chart below shows. Breakout outside the specified range should be material in my view. Proper money management is key to trading successfully along with sound strategy. I would be happy to talk to you about trading ideas in the silver market. Fed and China are fueling the rally in recent days. One must exercise caution as bullish headlines have a way of fading into the background. As I have stated, 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 Monthly Chart

silver_monthly_chart

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Energies - Crude Oil

Can WTI Crude Futures Print New Multi-Year Highs?

This week’s EIA Petroleum Status Report confirmed a more bullish fundamental outlook (at least in the near-term), with crude oil stocks having drawdown -2.6 million barrels for the week of 3/16.  The decrease in WTI inventories is likely a result of the 1.7% increase in gasoline and distillate production, with US refineries operating at 91.7% of full capacity.  As I have mentioned in the past, the $60 to $65 price per barrel threshold is significant for many (both within US, and abroad) stakeholders and producers in the global crude oil complex.  These two fundamental thresholds, where $66 a barrels “seems pricy” and $59 a barrel “seems cheap”, continues to be the range that has dictated price action for 2018.  A move outside this range will likely see a stop-driven follow through and be the catalyst for a medium-term trend.

With an increase in oil refining, the rally which broke through trend line resistance (dotted magenta line on chart), might be due for a technical pullback to test this broken trend line (now as support).  While a Fibonacci support zone has already provided a bounce from the $58.50 to $58.00 inflection zone (blue boxes on chart are Fibonacci inflection zones), WTI crude futures remain firmly below the 2018 (and 2017) contract highs.  Upside technical targets from $58.00 could take the WTI crude price to the $68.00 to $70.00 objectives, and near-term support may be found at the $62.00 inflection zone.  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.  Before this situation can even be considered, WTI crude price would need to settle below $61.00 a barrel.

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) has come back to life!  While there are still the prior highs ($66.66) to break through, there may be an opportunity to position for the resolving push out of the current range.  Although WTI crude oil prices remain in a $5.00 range, early indications (at least from a technical perspective) that the market wants to continue higher.  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

Technical fist fight around new lows – early signal of possible move higher?

Joe Nikruto

This week’s comment finds sugar futures attempting to stabilize and work off an oversold technical condition. After the break to new lows earlier this month in the May contract, sugar saw even more downside price pressure. Until Monday.  Monday’s move in sugar, a break to a new low of 12.30 and then a rally back up to 12.90 was nothing if not dramatic. This reversal took place on good volume and caught the attention of bulls and bears alike. Alas, back to the downside we went. Sugar was unable to hold onto any gains in the upper range. What looked on Monday to be a technical ray of light was muted as sugar closed back in the 12.50’s. The fundamental situation, though widely known and trafficked, remains.  Lots of sugar. The commodity trading funds are very short. 160k contracts or more.

Technically, the market is oversold.  The May sugar contract is squarely below all the moving averages.  The 10-day moving average comes in at 12.76, the 18-day at 13.01.  While merely derived, the moving averages are a fine line (no pun intended) in the sand we can use to gauge the strength of a market trend.  An inability to spend time over the 18-day is a hallmark of a strongly down-trending market. In previous comments I have struggled to find a way to elaborate the fact that sugar producers do not seem to be reducing production at these price levels.  Much like cattle feeding, which I have heard described as an addiction rather than a business, it could be that sugar producers would rather make a small profit or breakeven rather that shut production.  What price will inspire sugar producers to step aside? That is the wild card. 

Back to the commodity trading funds. They are very short and have more room to add to their position which adds to the potential for more downside pressure.  They won’t begin to cover short positions unless the market finds a way to work up to 13.58 and 13.94.  Even then, we have seen recent bouts of short covering lead to rallies, but they have been short lived.  The reversal on Monday could have been a signal that we have reached an area that end users view as attractive in terms of sourcing supplies. I want to look at this market from the long side, fully aware that trading against the trend is not often the path to profits.  If we can see more constructive price action, calls for May, which do not expire until 4/16, could provide aggressive traders a way to get long exposure for the next three weeks at reasonable cost.

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 - Coffee

If Coffee Demand is Strong, is it Our Next Sleeping Giant?

The coffee market has had a very slow week.  This is surprising considering how much other markets have moved this week after an interest rate hike and new tariffs introduced by the President.  Yet, I still argue that coffee is our next sleeping giant.  We have been sitting in between 117.50 and 122.50 most of the month.  I would argue this is due to the trades inability to generate news to take it higher or lower in value.  Yet, is this true, is there absolutely no reason to find an interest in a market that has been known to move five to ten cents in a day?  I say let’s look at the dollar and the possibility that all these decisions from the White House will likely lead to some loss in value and a boost in the value of foreign commodities such as coffee.  In addition, let us look at the fact that coffee has been pushed down to its cheapest in years due to a strong push to export as much as possible to cover shortfalls from the 2016 growing season.  The closer the May coffee contract gets to 117.50 and 115.00 the easier it is to think that we could have a strong turn around in value.  The demand for coffee continues to be strong worldwide and historically we usually do not stay at these levels for very long.

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

Daily Market Update - Grain Futures - 03/23/2018

Stephen Davis

RJO Futures Senior Market Strategist Stephen 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

Yen Remains as Global Safe Haven Currency

John Caruso

The Japanese Yen futures traded as high as .009613 (104.63 USD/JPY) in the early hours of 3/23 session, up 7% ytd.  Global equities were shook yesterday by simultaneous rate hikes in the US and China, S&P 500 futures traded down to 2617.00 overnight -2.2% YTD, while Asian equities, Shanghai Index and Jap Nikkei Index, got hit for -3.4% and -4.5% respectively.  While growth and inflation expectations seem to be souring around the globe, currency traders have sought shelter in the Japanese Yen while the dollar remains subdued and locked in a downtrend despite talk of further increases in US interest rates.  Despite it’s value as a safe-haven currency, set backs are certainly warranted from present levels as we triggered an immediate overbought condition this morning.  Furthermore, Japanese CPI (consumer inflation gauge) came in beneath expectations and runs well below the BOJ 2% target - which should grant the bulls an opportunity to book some gains.  On that note, we will look for further buying opportunities in the June Yen on pull backs to low end of its trading range/trendline support along .009500 as well as an ear to the ground in any major monetary policy shifts by the Bank of Japan. 

Recommendations: Stay bullish on the Yen, seek buying opportunities on pullbacks and be cautious heading into the next Bank of Japan monetary policy meeting.

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 Jun '18 Weekly Chart

yen_weekly_chart

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Interest Rates

Bond Bears Take a Breather on FOMC

The 30-yr bond rallied sharply Thursday on the heels of the FOMC decision Wednesday to increase the target interest rate by 25 basis points, to a range of 1.5 to 1.75 percent.  This came as no surprise, and the market was more interested in the Fed statement.  It was the statement that slightly surprised the bond vigilantes, with the Fed signaling that they will only raise rates three times this year, rather than four.  That is a more dovish stance, which sparked some short covering in bonds among participants who had hoped that the Fed would be more aggressive.  The Fed did announce that it was increasing its 2019 projection from two rate hikes to three, and the 2020 projection from one hike to two.

Early in Thursday’s session the June 30-yr bond future was up 2 points to 145’16 on flight to quality buying, as the S&P future was down over 50 points in a broad-based selloff.  As noted in previous articles, the flight to quality buying which typically accompanies sharp selloffs in equities has been absent the last couple months. However, bond bulls felt emboldened knowing that the short-term outlook for rates is less aggressive than had been expected prior to the FOMC announcement.

All this being said, the fundamentals have not changed significantly for bonds.  We are still in a rising rate environment, and there is a flood of new paper coming to the market as the deficit is slated to increase sharply with the tax cuts and spending increase.  Even if the bear market in bonds takes a breather, it will most likely resume after a short-lived bounce.

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-Yr T-Bonds Jun '18 Daily Chart

bond_jun18_daily_chart

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Equities

Short-Term Headwinds for Equities

Jeff Yasak

Uncertainties over the impact of the expected tariff announcement from the Trump administration Thursday is enough to keep sellers busy overnight. Foreign shares saw mixed results as the Shanghai composite and the Hang Sang indices posted minimal losses while the Japanese Nikkei saw a respectable gain.

The U.S. session will start out with a weekly initial jobless claims announcement that is expected to have a minimal down-tick from the previous 226,000 reading. The January FHFA housing price index is forecast to have a minimal uptick from December .3% reading.

Tariff uncertainties will likely reach their highest levels today as the market should look to settle after the release. However, fears of retaliation, concerns over the lack of advancement on the spending bill due Friday and ideas that the Fed will take a tough stance as the economy grows are all short-term headwinds for the market. The Fed hiked rates as expected and while they did not signal four rate hikes this year, they foretasted three in 2019 and another two in 2020. Resistance is around 2733 with support at 2703.

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 Jun '18 Daily Chart

e-mini_s&p_jun18_daily_chart

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