June 1, 2018

Volume 12, Issue 22

Feature Article

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Metals - Gold

August Gold to Retest Lows

Joshua Graves

August gold futures have been fairly quiet over the last several weeks. This comes just after we saw a $30+ selloff on May 15, and it’s likely to continue. If we look at the fundamentals we continue to see positive jobs data with this morning’s non-farm payrolls showing a major beat of 223,000 which was higher than the consensus of 190,000 and over the high estimate of 220,000. In my opinion, the Fed is still a coin flip from another rate high at the June meeting, and more positive data and stock market price action is needed to bring this to 100%. The North Korean situation is not adding anything to the bull argument with the June 12 summit more and more likely now that their top military spy chief is in New York to salvage a meeting. We’ve seen a bullish fundamental develop with the turmoil in their economy and as a result Italian bond yields spiked, leading to a flight to safe haven US treasuries gold included.

The technicals point to lower prices as well. Gold seems to be forming bear flags and stair stepping its way down toward the mid 1200’s. Look for another selloff toward the 1260 level as the last area of support. I would expect this to come as the USD rises over the next few weeks, especially if we get confirmation of an additional rate hike at the June meeting. Look for a near-term selloff to 1275, followed by the flag forming with recovery to 1285 over the next week or two. 

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 Aug '18 Daily Chart

Gold Aug '18 Daily Chart

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Metals - Copper

Stair Stepping with Copper

Eli Tesfaye

I haven’t written about copper in a longtime. I was reviewing the chart this morning again and I thought to share it. Copper is by far one of the best indicators of the strength of the global economy. It is used in many things, plumbing, AC, vehicle radiators, electronic goods.

With the rise in infrastructure spending in US and China, copper demand is only going to grow. The growth of manufacturing will also affect the demand for copper. Also, if there is a slowdown in the world economy copper will likely give you an early indication of that. For now, the trend is intact on the upside. Any correction will be a buying opportunity rather than selling. Near-term, the chart provides an opportunity for a breakout type of traders on a close above $3.20 as well, value could wait for a correction near $2.80. Unfortunately, an option play is not ideal in the copper market.

All in all, the copper market seems to have found support around $3.00, naturally, the trade would find anything below a $3.00 value. I don’t recommend trading copper options; however, I do like trading spreads in general. Please contact me for a trading strategy that would be suitable for your risk tolerance.

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.

Copper Weekly Chart

Copper Weekly Chart

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Energies - Crude Oil

Where is the Support for WTI Crude?

Dan Hussey

This week the EIA Petroleum Status Report showed a slowdown in US oil production, with US stockpiles losing -3.6 million barrels.  The EIA number has been all over the map in the last few weeks, with a large build of 5.8 million barrels last week, which leads me to believe the $60 to $70 range in crude prices is being arbitraged by the cash trade.  US refineries were operating at 93.9% of their capacity, a 2.1% rise compared to last week, is the likely reason for the increased crude consumption.  Refineries operating at near maximum capacity means the demand for WTI crude may be at highs.  This will likely translate to lower crude consumption in the near term, and result in a bearish price scenario going forward.

From a technical perspective, indicators which previously showed over bought conditions have been able to reset, with stochastics and momentum indicators tuning lower in this price drop over the last week.  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 still have 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 multiyear 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.  The current supportive inflection zone (Fibonacci 50% pullback from $58.07 low to $72.90 high) comes in at $65.49, which also aligns with trend line support drawn against lows (magenta lines).

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.  The recent pullback is currently testing the $66 prior highs (broken resistance) now being tested as support.  Technical upside targets were hit, which has resulted in profit taking from the $70 to $73 inflection zone, and the market is pulling back into its next support.  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

Short Covering Rally Arrives for Sugar as Funds Take Profit

Joe Nikruto

This week’s comment finds July sugar futures in the throes of a significant short covering rally. Open interest has declined more than 60k contracts while July sugar has rallied about 120 points since 5/16.  In this small amount of time the July contract has managed to take out previous resistance, 11.89, and rise above the 50-day moving average, 12.01 on it way to it’s current price level, 12.79, a place sugar hasn’t been in since late March.  This has moved July sugar squarely into technically overbought territory.  What’s more, it is likely that this rally is not supported by fundamentals. 

The jawboning of energy markets by the tag team of Saudi Arabia and Russia has been little noticed by the sugar market.  Crude and gasoline markets have been brought low by the implication OPEC will increase supply after their agreement to reduce production expires in 2018. Even with this outside market pressure sugar has continued to rally. Brazilian cane processors have been favoring ethanol over sugar due to higher margins brought about by higher crude prices which in turn reduces the supply of available sugar. A convenient truth that fits perfectly onto this current rally.  And, it will be more than interesting to see if this fact alone is enough to sustain this rally. 

12.87 represents a line in the sand where trend followers well be forced to be buyers.  That means funds who held near record short positions two weeks ago have been moved out of a large part of that short position and will now be forced off the sidelines and into long positions. Typically, being astute technical market participants, we believe that the chart will anticipate changes in the fundamental picture. If the sugar market is breaking out to the upside, even though we know fundamentally that the supply part of the equation is overwhelmingly bearish, we should respect the price action and the ability of the ‘technicals’ to portend a change in trend. This is often true. Is that the case here and now? Sugar can remain overbought technically.  Price action is very bullish and forcing the hand of the funds. Funds have more short positions to cover and new long positions to enter. How much higher can it go? It is hard to see sugar trading over 14.00 for very long.  Still, entirely possible.  If you already have calls in place take some profit and let some ride. If this market has legs, and is heading over 14.00, calls bought even now could work out well for those with the risk tolerance. Ultimately, I believe that sugar is coming back down. A quick look at the chart below shows that after it rallies it can fall apart just as fast if not faster.  To that end I am suggesting traders look at put spreads that will benefit should sugar begin to make its way back down to 11.00. It does not appear that sugar production has declined for some producers it has even increased.

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

Further Cocoa Slide Reaffirms Correction, Defines New S-T Bear Risk



This week's continued slide reaffirms at least the intermediate-term downtrend and leaves smaller-degree corrective highs in its wake at 2540 and 2642 that serve as our new micro- and short-term risk parameters the market needs to sustain losses below to maintain a more immediate bearish count. Its failure to do so will confirm a bullish divergence in momentum that, for reasons we'll discuss below, could define the end or lower boundary of a larger-degree bull market correction.

While the extent of the past month's relapse is sufficient to conclude 26-Apr's 2943 high as the END of a textbook 5-wave Elliott sequence from 22Dec17's 1804 low, this relapse falls well within the bounds of a mere correction given the magnitude of Dec-Apr's rally. Indeed, as shown in both the daily log scale chart above and weekly log chart below, this relapse has retraced exactly 38.2% of Dec-Apr's 1804 - 2943 rally. And we would look for proof of waning downside momentum and a confirmed bullish divergence from this general area to reinforce a count calling for an eventual resumption of the secular advance. In lieu of such a bullish divergence in mo we do not want to underestimate the market's downside vulnerability given the recent returned to historically frothy levels of market sentiment typical of broader PEAK/reversal environments.

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

 Cocoa Jul '18 240min Chart

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Agriculture - Grains

Daily Market Update - Currency Futures - 06/01/2018

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

US Dollar Responds Well to Non-Farm Payroll Data

John Caruso

A trifecta for the US Non Farm Payrolls data this morning, with headline jobs beating estimates (223K vs 190K expected), wage growth accelerating both m/m (0.3% vs 0.1%) and y/y (2.7% vs 2.6%).  The US dollar likes the data, pressing higher by 20pts this morning to 94.17 this morning and +2.6% ytd.  The USD has also drafted some support from a possible impending Italian debt crisis.  The euro continued it’s decent this week, falling as low as 1.1526 (June basis), a level not seen since July of last year.  Despite the negatives surround the euro, we did trigger immediate-term oversold levels on Tuesday and the market has since bounced to 1.1690.  Anxiety over Italy seems to have cooled off a bit in the near-term, but we certainly don’t believe these issues are going away any time soon.  We are advocates of selling into rallies in the euro closer to 1.1800 vs the USD.  The US Federal Reserve is on deck next week, where we’re expecting another 25 bps interest rate increase.  How will the Fed guide us moving forward is the question.  This will be our second interest rate hike this year, and we’re expecting one more in the back half of 2018.  Three rate hikes have been priced into the market, and the question is whether the Fed will open the door for a fourth rate hike, which we believe the market has not priced in.  Look to stay on the long side of the USD/EUR trade.  Watch for dips in the USD closer to 93.00 and euro rallies closer to 1.1800 is how we’ll suggest to manage the trade. 

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

US Dollar Weekly Chart - Bearish to Bullish transition

US Dollar Weekly Chart

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Equities

Stocks Look Strong from Positive Data and Less Political Turmoil

Greg Perlin

Stocks are looking for a positive day after Non-Farm Payrolls exceeding expectations with a gain of 288K vs street estimate of 185K.   In addition, wages came in as expected at 2.7% which is a key indicator that the Fed looks at to get a gauge on inflation.   Currently, the S&P is up $16 at 2722 and the Nasdaq up 35 at 7011.00.   What I found quite interesting this morning is the POTUS tweeted this morning at around 6:30 central, that he was looking forward to today’s job number which came out about 1hr after his tweet.  Point here is that now investors are saying obviously he knew the number prior to the release and if that’s the case, why would he tweet giving traders indication the number was good.  In addition to the positive employment number stocks are finding relief that the political turmoil that has spooked markets all week has calmed as the country looks as if it has come to a consensus on forming a coalition government.   Let’s focus on technicals for the June E-mini S&P.  Traders should focus on the current 100-day moving average which comes in 2712.   We are above that right now, currently sitting at 2726.   So intra-day, the market looks positive and traders should have the “buy the break” mentality with 2712 providing stiff support.   Outside markets are positive with yields up across the board and weakness in the Japanese Yen which is showing a risk on trading environment.   In addition to the earlier data, we have ISM Manufacturing at 9:00 central.

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

E-min S&P 500 Jun ’18 Daily Chart

E-mini S&P 500 Jun '18 Daily Chart

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