May 18, 2018

Volume 12, Issue 20

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Metals - Gold

June Gold to Retest Lows

Joshua Graves

The gold trade has seen quite the selloff over the last seven days. Right now, the main driver of this is a resilient US dollar and a growing chance of four rate hikes in 2018. Despite the recent, sharp selloffs over the past few months, the US stock market seems to have started the climb back toward the highs and investors have shrugged off the possibility of more volatility. This would inherently reduce the demand for a safe haven asset like gold.

The technicals spell disaster for June gold, clearly. Not only has the trade broken the psychologically and fundamentally important level of 1300, but there is not much for support until the recent contract low back in mid-December of 1247. Look for a dead cat bounce as we approach this low for a good entry point. We are also trading below all moving averages, with the most important level being the 200-day moving average. A Fibonacci retracement on this from the contract low to the high showed the 62% retracement of 1300, which is another broken support level. Until gold has new bullish news to trade off of, look at the market perception and the momentum as the biggest reasons to drive gold down. The last leg of support that I see for June gold comes in from a long-term trendline support going back to July 10 of 2017 at around 1273. If we take out this long-term upward trendline, look for a quick retest of the 1250 area.

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 Holds Strong Against Gold

Eli Tesfaye

July silver is holding above 16.00 this week, currently trading at 16.425, down about 5 cents on the day. The 4hr chart for July silver is in a “bear- flag” type of chart formation and suggest that these levels may not hold for long, sending silver below 16.00. The US dollar is very strong once more this morning. Pulling up a monthly chart in the US dollar will quickly assure you that the bull camp has the technical advantage. Headline news such as a possible summit with Pyongyang and trade talk with China and the European union are positive to the US dollar. One thing is certain, despite recent weakness in metals, silver is stronger than gold. I periodically visit the gold/silver ratio, the chart below suggests that silver is becoming more favorable over gold. In other words, gold is expensive! The ratio is hovering around 80.00. In my view, a reading above 80.00 makes silver cheap and below 60.00 makes gold cheaper from a historical perspective.

Again, the technical outlook for silver is that it is up at least from the monthly low of 16.07 made May 1, 2018, but overall, it's trending down. If price breach the 16.20 level again, per-close bases, could result in selloff to the 16.00 psychological level. If pressed below 16.00, you might see a low 15.80 or even lower. So, all that said, a trade over 16.70 is needed to put near-term lows in.

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.

Gold/Silver Ratio Weekly Chart

Gold/Silver Weekly Chart

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Energies - Crude Oil

Can WTI Crude Continue to Rally?

This week the EIA Petroleum Status Report showed a slowdown in US oil production, with US stockpiles losing -1.4 million barrels.  This continues after last week’s -2.2 million barrel draw showing a week over week demand for WTI crude.  US refineries were operating at 91.1% of their capacity, a .07% rise compared to last week, is the likely reason for the increased crude consumption.  With WTI crude flagging sideways at multi-year highs, the supporting fundamentals suggest the path of least resistance is still higher in the near-term.  It’s also worth noting, the current run up in crude prices could be the result of pipeline constraints, where US shale oil fields are having trouble moving the product to market.  This is generally because pipelines are at capacity, and with pipeline expansion projects in the works, WTI producers are having to rely on the more expensive means of trucking crude from fields to refineries.

With a constraint in the ability to get oil out of production areas, coupled with tensions in the Middle East, and an increase of US gasoline production (in anticipation of seasonal summer demand), the price of WTI crude seems to be justifiable in its support.  With the run up confirming, some conditions are starting to suggest short-term over bought conditions, but with each selloff to the low end of its current range, those conditions seem to be unwound and buyers keep prices stable.  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 have begun their climb towards these inflection zone targets clustered between $70 and $76 a barrel.  The short-term target from $58.00 (which is at $71) has been hit, and a pullback is often times the result of profit taking rather than the start of a reversal in trend.  If WTI crude prices break back into the multi-year range (below $65), traders can expect support into the $63.80 and $58.00 inflection zones.  Before this situation can even be considered, WTI crude price would need to settle below $65.00 a barrel.  Until then, expect buyers in the dips, and for the price of WTI crude to continue to test the $70.00 handle, and a break above could lead to a test of $76.00.

In my opinion, the rally that has taken WTI crude prices above the $66.66 continuous contract highs (into the end of 2017 and start of 2018) is still at the forefront of traders’ minds.  The fight over trend seems to be all but won by the bulls, which had been ruminating for most of the month of April.  While technical upside price projection targets have been hit, there may be an opportunity to position for the resolving push to test above $70.00 and hit those technical $76 upside targets, in pullbacks to test $65.00.  With WTI Crude prices above prior multi-year highs, the trend is up until it’s not (and I like to think, trend is my friend).  When a market speaks, you must listen, and WTI crude may be telling us this is the beginning of a much larger trend being born.  

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 Production Continues Against Low Demand

Joe Nikruto

This week’s look at July sugar futures finds a market that continues to labor under significant fundamental pressure. Specifically, the idea that top producers India and Thailand will post another year of record production. In an article from Bloomberg last week we saw talk of this record production. And, notably, word from the recent sugar industry gathering in New York, Sugar Week was of declining growth in consumption. This is more than interesting for sugar watchers as we see lots and lots of talk about sugar in the food and fitness industries, while the financial world seems to prefer to pretend that this challenge doesn’t exist.  Lack of demand for sugar coming right at a time where production of sugar is increasing again to the point of surplus is not an environment that fosters sustainable rallies. It really begs the question as to why producers, who we can reasonably assume are sophisticated market watchers, would produce a commodity that people are wanting less of and that continues to decline in price.  Recent discussion has focused on producing countries gunning for energy independence and not so much on selling sugar for consumption. This explanation makes sense and by extension makes the case for further erosion in the price of sugar. Unlike OPEC, and to a certain degree US shale oil producers, countries producing sugar are showing no restraint in production. They could believe that ultimately, while maybe not this year or the next, much of the sugar they produce will find a home at a refinery and be burned as fuel domestically.

As usual, the idea that I can wrap my head around the bearish fundamentals so clearly here at this “low” price level speaks to the possibility of violent and significant short covering rallies.  Funds have near record short positions.  The commercial trader is on the other side of that. Historically, we look to the commercial category to define possible market direction and with good reason. Those are the participants who have the best insight into the market as they produce and use the commodity in question.  How could the market possibly go lower if the funds are massive short and the commercial trader is on the other side?  Who is left to sell sugar futures?  What we have witnessed in the last year is a recycling of those positions.  Funds cover short trades on moves that take sugar futures above technical levels, either taking percentage-based profits or flattening positions. The size of individual participant positions declines.  This allows the market to gather itself and then large participants can come back again and take the market to new lows.  Hightower group this morning pointed to ideas that higher gasoline prices are making for good margins on cane turned into ethanol in Brazil.  And the possibility of dry weather in areas of Brazil could lead to declines in production as well. This lays the groundwork for short-term bullish developments should they come to fruition or continue to impact the supply of sugar.  Normally we follow the adage “Trade with the Trend!” But I believe that short covering rallies could present real opportunity and that options in sugar are inexpensive enough to allow traders to get in with less expense or scale into larger positions as risk tolerance and trading capital allows.

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 Jul '18 Daily Chart

Sugar Jul '18 Daily Chart

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Softs - Cocoa

Cocoa Still Experiencing Volatile Price Action

Alexander Turro

Cocoa has been experiencing volatile price action as of late, falling more than 3% yesterday and trading below the 50-day moving average. This comes following global demand concerns as well as minimal support from the Euro and the British pound, which have been experiencing downward pressure from the surging U.S. dollar. Cocoa appears to have broken a longer term trend line, however, overnight news of added export demand from Ghana may provide support as well as fuel a minor corrective move. Global supply outlook has remained bullish although it will be important to continue to monitor demand as well as grinding data ahead of the conclusion of the season. Cocoa appears to be slightly overbought in the near-term with resistance at 2709 and 2806 respectively and support at 2574. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-1120 or aturro@rjofutures.com.

Cocoa Jul '18 Daily Chart

Cocoa Jul '18 Daily Chart

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Agriculture - Grains

Wheat Leads the Grains as Soybeans Continue to Falter

Tyler Herrmann

The corn market has chopped sideways this week after last week’s trade lower off the 408^2 highs. The market remains in an indecisive state with outside forces remaining bearish and many unknowns from the growing season ahead. Increasing trade pressures with China, NAFTA negotiation delays, and a stronger dollar are currently holding the market from running higher. Weather in the northern growing regions is not ideal for finishing planting but warmer and moist conditions in the Midwest are good for corn already in the ground. Weekly planting progress showed 62% planted, compared to 39% last week, which is lower than last year’s 68% and the ten-year average of 65%. July corn is trading off support at 395^0 with second support coming in around 389^6. Resistance is at 400^4 and at the highs of 408^2. The December contract sees support at 412^6 and resistance at 420^2.

Corn Jul '18 Daily Chart

Corn Jul '18 Daily Chart
July soybeans continued pushing lower yesterday, trading down to 992^4. The soybean market continues to watch trade negotiations with China closely, as it searches for support. Brazilian currency weakness continues to push the market lower along with producers being active sellers. US soybean exporters announced a sale of 132,000 tonnes this morning, delaying a planned strike at Argentine ports and crushing plants. Momentum studies are approaching oversold levels showing this trend lower may be looking to bounce. The July market shows support at 990^4 and 980^4 with resistance at 1001^2 and 1012^0. The November market sees first support at 1000^4 with resistance coming in at 1013^4.

Soybeans Jul '18 Daily Chart

Soybeans Jul '18 Daily Chart
The wheat market has traded higher this week in both the Chicago and Kansas City markets after trading lower off the highs of 538^4 and 568^4 respectively. The market is being pushed higher to start the day mainly by reports of recent storms causing possible wind and hail damage. Dryness issues in Australia, Canada, and Ukraine are also supporting wheat's push higher. Most areas throughout the US also remain very dry and are in need of rain. Export sales came in today below estimates and wheat sales stand at 95.3% of the USDA forecast. This week’s move higher has turned the trend to the upside. Support in the Chicago market comes in at 491^2 with resistance at 510^4. The Kansas City market sees support at 509^4 and resistance at 536^6.

Wheat Jul '18 Daily Chart

Wheat Jul '18 Daily Chart

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or therrmann@rjofutures.com.

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Currencies

Daily Market Update - Currency Futures - 05/18/2018

John Caruso

RJO Futures Senior Market Strategist John Caruso discusses the currency futures markets. 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

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Interest Rates

10-Yr T-Notes Reaffirm Secular Bear Trend



Tuesday's clear and impulsive break below 25-Apr's 118.31 low confirms our suspicion that late-Apr/early-May's recovery attempt is a 3-wave and thus corrective affair within our long-term bearish count reintroduced in 13-Apr's Technical Blog. As a direct result of this resumed weakness, the 240-min chart below shows that the market has identified Fri's 119.17 high as the latest smaller-degree corrective high and new short-term risk parameter it is now minimally required to recover above to threaten a more immediate bearish count. Per such 119.17 is considered our new short-term risk parameter from which a bearish policy and exposure can be objectively rebased and managed.

Tuesday's prices mark new lows for the entire bear market from Jul 2012's 135.16 all time high. As a result, ALL technical levels of any merit exist ONLY ABOVE the market in the forms of former support-turned-resistance like the 119.00-area and prior corrective highs like 119.17 and 04-May's next larger-degree corrective high and key long-term risk parameter at 120.00. In effect, the trend is down on all scales with no support below the market. Further and possibly accelerated losses are expected in the resumption of what we believe is a secular bear market that could span a generation.

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

T-Note Jun '18 240min Chart

T-Note Jun '18 240min Chart

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Equities

Equity Market Faces Headwinds

Jeff Yasak

Without help from a breakthrough in trade deals, the equity market may need to take in more selling in the short-term. Asian stock markets posted mixed results, as a modest gain for the Nikkei was balanced against declines in the Shanghai composite. Earnings announcements will include Walmart before the market opening, while Applied Materials will report after the close.

The market seems to have plenty of headwinds which might slow investor sentiment and spark some movement to the sidelines. Higher interest rates, higher energy prices and notions that the China/US trade issues are a long way from resolution are seen as potential negative forces. Higher interest rates to consumers, plus the jump in gas prices are factors which could hurt personal disposable income. Resistance comes in at 2734 with support at 2710.

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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