April 6, 2018

Volume 12, Issue 14

Feature Article

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Metals - Gold

June Gold, Range Bound for Now but For How Long?

Joshua Graves

June Gold has seen substantial volatility over the past few weeks with today being no exception. June gold has seen a very specific trading range in this timeframe, but the size of the moves proves the precious metal is still very much followed closely. The current fundamentals of gold clearly point to much more bullish price action as the talks of a trade war with China become more and more likely. Yesterday, President Trump announced he would ask the state department to prepare an additional $100B in additional tariffs, to which China has responded it will fight the US trade war “to the end” with its own retaliation of $100B in additional sanctions. These are clearly very bold statements and actions from both sides. Another more recent reason to be fundamentally bullish gold (in the near-term) is the weak economic data from the US non-farm payrolls out this morning. The data showed 103,000 jobs added vs a trade expectation of 175—193,000. This is a clear flop and gold is up close to $10 on the news. A key for gold’s price action over the next week or so will be Fed Chair Powell in his speech in Chicago today about whether the potential trade war with China and recent stock market volatility will cause the Fed to rethink its current rate hike plans. When the Fed raises interest rates (100% rate hike discount in the next June meeting) it puts pressure on the safe-haven asset and boosts the US dollar index as it becomes a better investment.

The technical look for gold doesn’t point to any direction, but more of a range bound market. This is a great market to use options with as the volatility has increased the prices and there are very clear support and resistance areas.

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 Jun '18 Daily Chart

Gold Jun '18 Daily Chart

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Metals - Silver

Silver Working Through Consolidation

Eli Tesfaye

May silver is trading 16.455, up about 10 cents on the day. In previous articles I discussed how silver was putting potential bottom like structure on the charts. As I have stated before, near-term lows are in despite weaker performance by silver in the light of a weak dollar this morning.  The trade has been that silver is trending opposite of equities. The May contract is bouncing off yesterday’s lows of 16.15. Technically, a close above 17.00 is needed to 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 I have 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 even though it has been a little disappointing that the strength in silver has not been material.

Bulls should be encouraged that silver is not melting down with equities, rather silver is trading opposite to indices. As I have said before, dips should 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. The Employment Situation number from this morning shows that the fundamentals of the US economy is still solid. The wild card here is the impact of a trade war with China that hasn’t been factored in the market yet. For now, silver seems to be benefiting from it.

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 May '18 Daily Chart

Silver May '18 Daily Chart

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Energies - Crude Oil

Are WTI Crude Bulls Firmly in Control?

This week’s EIA Petroleum Status Report continued to confirm a more bullish fundamental outlook, with crude oil stocks having drawn down -4.6 million barrels for the week of 3/30.  The decrease in WTI inventories is likely a result of the increase in refinery operation, with US refineries operating at 93% 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) producers.  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.  Recent technical levels have also proven supportive for WTI crude, with the market beginning to look more and more constructive to the upside.

With an increase in oil refining, the rally which broke through trend line resistance (upper magenta line), resulted in a pullback to test this broken technical level (now as support).  I mentioned this potentially being the case in my last article, and seeing it now hold (alongside a couple other technical levels) reaffirms my suspicions that bulls are defending their levels.  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 form $58.00 could take the WTI crude price to the $68.00 to $70.00 objectives, while near-term support was 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, however, the bulls have been holding their key levels and defending their supportive levels.  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) is still at the forefront of traders’ minds.  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 have begun to confirm 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

Trend is down in sugar but how low can it go?

Joe Nikruto

This week’s comment for sugar finds the May futures contract languishing near recent lows. Fundamental pressure and outside market volatility have conspired to keep sugar on it’s heels.  With over two weeks of price action taking place below the 18-day moving average the trend is most certainly down. With the market at 12.24 on Wednesday, the nearest trend following stop is all the way back up at 13.26 and it would take a dramatic reversal of fortune to even turn the trend sideways. With May sugar futures squarely in oversold territory it should come as no surprise when this market finds a way to post a relief rally.  Aggressive traders could even try to position for this with inexpensive call options.  Other than a relief rally it requires imagination to see this market sustaining a trend change. Of course, once we cannot locate even one bullish fundamental this can be a bullish signal in and of itself.  The bear case is well known and well trafficked: Lots of sugar. Less being imported by major Asian players. And harvest coming on in Brazil.  Many traders will be tempted to position from the long side simply as a contrarian play.  The commercial trader category is very long, and the fund trader category is very short. This should catch our attention and speak to the possibility that the market is over-extended to the downside.  It is not, however, a clear signal to be long yet. The trend is down. That must be respected.  Any talk of long positions for longer term traders would be premature. But, short-term traders who think they can catch the falling knife by the handle could be well rewarded should this market rally up and test trend followers with stops near 13.26 and 13.81.

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 - Cotton

Cotton Reaffirms Peak/Reversal Threat; Identifies New Key Bear Risk Level



Overnight's clear, impulsive break below the past MONTH'S worth of supporting ranging from 81.71-to-80.67 provides the next reinforcing step to a peak/reversal-threat process that could be major in scope. This resumed weakness leaves yesterday's 82.81 high in its wake as an admittedly short-term but crucial corrective high this market is now required to sustain losses below to maintain a more immediate bearish count. In this regard 82.81 is considered our new short-term risk parameter from which all non-bullish decisions like long-covers and new bearish punts can be objectively based and managed.

To this point the broader developing decline from 06-Mar's 86.60 high is "only" a 3-wave affair, so we cannot ignore the ultimately-bullish possibility that today's portion of the slide isn't the completing c-Wave of a correction that would ultimate re-expose the 2-YEAR bull. But to resurrect such a bullish count the bull must recoup at least 82.81.

By sharp contrast and until such 82.81+ strength is shown, the current stage of the past month's decline could be the exciting 3rd-Wave of an eventual 5-wave structure that could not only be extensive in terms of both price and time, but relentless straight away. In this broader bearish scenario former 80.67-to-81.71-area support would be expected to easily hold as key new resistance ahead of increasingly obvious and steep losses.

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

cotton_may18_240min_chart

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Softs - Coffee

Economics Factors and the Coffee Market

The coffee market woke up this morning slightly lower on a lack of outside news to help give it any direction.  This week has given the trade an opportunity to digest the idea that we may be forming a base in the price of coffee.  We have been in a solid downtrend for over a year making one feel uneasy about how much further we may have to drop in a market that consistently shows solid demand.   I would argue that the trade needs to start looking at the outside markets to give us our next catalyst.  The currency factor, which is derived from the US dollar/Brazilian Real Spread, is an important part of how one looks at any of the softs.  The idea here is that should economic factors in the next couple of weeks push the value of the dollar lower we can likely expect a rise in the value of coffee.  Granted, it should be noted that we have seen that a volatile equities market can sway this theory.  However, I would say that should the dollar start trading lower than 89.00 and the equities markets hold steady, the trade might be prime for a solid turnaround in value.

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 May'18 Daily Chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 04/06/2018

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

Is it time to bet on the Aussie?

John Caruso

Aside from the Aussie dollar seemingly sitting on a 2+ year long bull trend support line, we believe any negative economic news out of Australia has likely been priced into the market.  On top of this, the Reserve Bank of Australia may be set to raise interest rates at the August meeting based on the observation by the RBA that the “rate of wage growth appears to have troughed”.  The RBA has tied its inflation forecasts very tightly to the rate of change in jobs growth and wage growth, and with the aforementioned statement regarding wages, we believe a rate hike will happen sometime in the back half of 2018.  On the other side of the trade is the US dollar, which has been trapped in a bearish to sideways trend in recent months.  As always, we’ll continue to monitor Australian inflation and jobs data in coming weeks and months as they still may not be entirely out of the woods, but I will say my interest is piqued in the Aussie Dollar. 

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.

Australian Dollar Weekly Chart

Australian Dollar Weekly Chart

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Interest Rates

June 30-yr Bond Futures Smack Dab at the Bottom of a Channel

June 30yr bond futures are smack dab at the bottom of a channel that has been forming since the Feb 22ndlow of 141’14.  Currently bonds are trading at 145’00.  Although bonds have been channeling up since that Feb low, this could be a quintessential flagging pattern, before a resumption of the downtrend.  If the bottom of the channel is decisively broken, bonds will be testing that low in short order.  This provides an interesting dilemma for tomorrow’s Nonfarm Payroll number, because technically there should be support at the bottom of a channel, which provides a nice technical entry point for longs.  However, if the report comes out hot, bonds will most likely dump and take out the bottom of the channel. 

Consensus estimates via Bloomberg call for an increase of 175K new jobs.  The Unemployment rate is expected to drop to 4% from 4.1%.  Closely watched Avg Hourly earnings are expected to move up a tick to 2.7% year over year. 

The Fed reduced it’s expected rate hikes from 4 to 3 in the last FOMC meeting.  However, if the report soundly beats expectations, a more aggressive Fed may make an appearance.  Fed Chair Powell is expected to speak later in the day which warrants a very close listen. 

Although the technical set up looks bullish today, I still believe the fundamentals are bearish longer term. Tightening Fed, and bigger budget deficits is bearish bonds.  The caveat is the stock market, which has spurred some flight to quality buying.  I don’t think this flight to quality will last.  As the stock market regained footing over the last two sessions, we have witnessed the air coming out of bonds rapidly.  I think it makes sense to be neutral at this point due to conflicting technical and fundamental analysis, with a finger on the trigger ready to fade any rally, or jump on a sell off, following tomorrows report. 

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-Bond Jun '18 Daily Chart

bond_jun18_daily_chart

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Equities

Changeless Cycle of Threats for Equities

Jeff Yasak

Global equity markets were weaker overnight in response to the answer from the US on China’s tariffs earlier in the week.  The bull camp has to hope that something positive comes from the US payroll window to counter the rising trade uncertainty.  Earnings announcements will include Greenbrier before the Ney York open.  While we would suggest that downside reaction in the S&P this morning is somewhat impressive, the path of least resistance remains down due to what seems to have become a changeless cycle of threats.  The stock markets don’t like uncertainty and the E-mini S&P in the early action today sits roughly 94 points above this week’s low and that leaves the market vulnerable to technical and fundamental selling. 

Momentum is trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The next area of resistance comes in around 2675 and 2690, while support comes in at 2650 and below is 2630.

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 500 Jun '18 Daily Chart

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