June 15, 2018

Volume 12, Issue 24

Feature Article

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Treasury Futures and Optons for the Active Trader

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Metals - Gold

August Gold, Time to Plummet?

Joshua Graves

Much news regarding gold has been seen this week from the FOMC meeting where rates were raised a quarter point, to tariffs on Chinese goods. Gold has had several reasons to selloff and now it appears that it’s finally enough to break all support around 1290 and continue down. A fed meeting where rates are raised typically helps the US dollar and pressures gold; this didn’t happen Wednesday, and gold traded up and appeared to start to break out. Then, the US dollar traded to it’s highest level in over a year, while a miss on industrial production this morning both put pressure on the precious metal. On the bullish side one would think that $50B worth of Chinese tariffs with most assured retaliation from China would rattle the markets and show investors flocking to safe havens.

On the technical side the bull picture is no longer there. All signs point to lower prices, and with this severe break in gold this morning it appears that we are indeed headed to December of 2017 lows of around 1260. We have broken the most recent set of lows around 1286 and have not been at this level since December 21 of 2017. Gold entered into bear territory several weeks ago when the 200-day moving average was crossed indicating a “death cross” or overall market direction up or down. A close above 1313 would show that this market does have the stamina to make a run to new highs, and a close above 1319 would show a “gold cross” or bullish cross above the 200-day moving average.

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 - Silver

Tariffs not Lending Support for Silver

Eli Tesfaye

July silver is holding trading around 16.67 today.  The trade is poised to erase all gains from this week. The US dollar once again is firm, and it has taken out three week lows and highs on the chart and closing higher for the week. The dollar is trading at the highest level for 2018. With “tariff” war with China, the dollar has benefited more that than the metals.

Last month, I wrote about the gold/silver ratio. In it, I discussed how silver is cheaper relative to gold.   Gold is still expensive! When I wrote about it last month, the ratio was hovering around 80.00. I stated that above 80.00 makes silver cheap and below 60.00 make gold cheaper from a historical perspective.

Again, the technical outlook for silver is that it is up at least from the monthly low made May 1, 2018 of 16.07. Right now, the weekly chart has a “dark cloud” type of candlestick “in the making” chart formation suggesting that follow-through weakness is possible. But the trading day is not over yet. Silver has a lot of support around 16.00. I would not throw in the towel so to speak on the bull scenario until I see a close below 16.00. All that said, a close above 17.00 is needed to complete corrective price action.

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 Ratio Weekly Chart

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Energies - Crude Oil

Can WTI Crude Prices Make New Multi Year Highs?

This week the EIA Petroleum Status Report showed a slowdown in US oil production, with US stockpiles losing -4.1 million barrels.  The EIA number has been all over the map in the last few weeks, with a notable build of 2.1 million barrels last week, which continues to fortify my belief that the $60 to $70 range in crude prices is being arbitraged against the cash trade.  US refineries were operating at an incredible 95.7% of their capacity, a .3% rise compared to last weekend nearing the historical highs in capacity.  Refineries operating at near maximum capacity means the demand for WTI crude may be nearing its highs.  This will likely translate to a slow down in crude consumption, as a result of maximum capacity being reached, and subsequently a bearish price scenario for WTI crude futures in the near-term

From a technical perspective, momentum indicators have started to react from oversold conditions, with stochastics now bouncing off their low (from a daily chart perspective), with WTI crude prices stabilizing over this las 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 has 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.  From the $65.50 inflection zone, the market has bounced from this 50% line, back towards the $67.23 price area, which is the 38.2% Fibonacci level of the same retracement.  If WTI crude prices break back into the multiyear range (below $64.22 recent lows), 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 break below its recent $64.22 lows.  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.  The trend is still up until it’s not, and I believe a break below the $64.22 price level would constitute a reversal at this time.  Technical upside targets were hit, which has resulted in profit taking from the $70 to $73 inflection zone, and the market has simply pulled back into its next supportive price level.  With WTI crude prices above prior multiyear 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 Short Covering Rally Complete. Now what?

Joe Nikruto

This week’s comment finds the now prompt October sugar futures contract occupying technically treacherous middle- ground.  Flagging consolidation gathering for new upside thrust or failing momentum showing a withering attempt to establish an uptrend? As we discussed in previous comments the sugar market has undergone an almost total change in ‘ownership’. Commodity trading funds who were short over 150k contracts a little more than a month ago are now only slightly short and maybe even long.  The commercial trader category has gladly taken the other side selling sugar futures to the fund trader on the way up. This recycling of positions, in my opinion, leaves the market now vulnerable to downside pressure. 12.98 and 13.17 to the upside along with 12.00 and 10.92 to the downside are the levels where funds will have to commit and begin to establish new positions. 

This morning’s comment from the Hightower group continued to highlight the use of sugar cane for ethanol as the margins are supportive. Sugar has been remarkably resilient in the face of news of continuing surplus as well.  Large producers such as Thailand and India continue to flood the market with sugar according to Hightower. Known fundamentals? Maybe so. But the global surplus of available sugar shows no sign of abating.  In times of commodity price inflation sugar futures become almost an asset class in and of themselves. Commodity prices are not on fire by any measure, yet.  And, I would not suggest that this inflation hedge could be enough to propel the October futures market to new highs by itself.  If October sugar futures were able to hold here and begin to advance up toward those levels I mentioned earlier the funds would be forced to establish new long positions. This could see October sugar futures trade up to 14.00. My favored scenario is tied to the fundamental situation, surplus for the next year or two at least, which I believe will bring sugar back down to 11.00. How to choose a direction? This is a spot where traders can be on both sides of this market with option spreads. While we are squarely in the middle of the last 2-3 weeks range I do not expect to see the October sugar futures contract here for long, one way or the other.

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 Oct ‘18 Daily Chart

Sugar Oct '18 Daily Chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 06/15/2018

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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Agriculture - Livestock

CME Group Market Movers: June 28 Hogs & Pigs Report

What's driving demand for U.S. pork? Industry experts Dave Hightower, Founding Principal of The Hightower Report and Dan Basse, President of AgResource Company, discuss this and more ahead of the June Quarterly Hogs and Pigs Report.

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FOMC and ECB Highlights

John Caruso

It was an action packed week in the currency space with the FOMC meeting on Wednesday, followed by Mario Draghi and the ECB Policy Announcement.  The Federal Reserve raised the overnight lending rate in the United States a 0.25% to 1.75%, while simultaneously signaling more rate hikes to come in near future months.  This came as no surprise to market participants as US Growth and Inflation expectations continue to accelerate.  The US dollar had a fairly muted reaction (actually finished down for the day), while most of this expected news was likely priced into the market.  The big intra-day move in the currency space happened following the much anticipated ECB meeting.  Draghi announced an expiration date for the ECBs Quantitative Easing program for December of this year.  Furthermore, Draghi mentioned that an ECB interest rate hike could happen as early as midyear 2019.  Despite this hawkish portion of policy statement, Draghi also cut the Euro Zones growth forecasts for thru 2020, and upgraded the inflation outlook. 

The market reaction was very bearish for the euro vs US dollar pair.  The euro sold off to 1.1564 on the June contract, down more 230 points for the day!  This appears to be far from over as well.  Italy appears to be on the brink of an disastrous debt crisis, seeing interest rates on the Italian 10-yr spike 95 bps in the past month to 2.87%.  Where the Euro Zone goes from here, is anybody’s guess, but the slow down doesn’t appear to be over by any stretch of the imagination.  The USA still looks good – GDP continues to accelerate, however we are beginning to see early signs of “peak inflation”.  The CRB (commodity) Index appears to be posting lower highs, and Treasury bonds are beginning to gain some upside traction.  Emerging Markets have crashed in the past several weeks, and China economic conditions appear to be slowing.  On top of all of this, the USA appears to be on the brink of a trade war with the rest of the world.  From the outside looking in, market on a global scale appears to a slow moving train wreck at the moment.  But Shh! Don’t tell equity 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.

Euro Sep '18 Daily Chart

Euro Sep '18 Daily Chart

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The Fundamental and Technical Edge in Equities

Jeff Yasak

Overnight Thursday, global equity markets were weaker in the wake of the US FED interest rate hike on Wednesday.  However, China posted economic data that grew at a slower pace than anticipated, and the Chinese central bank held steady on interest rates even with the US move to raise rates.

With a fresh four-day low early Thursday, the Fed news from the previous session continues to weigh on prices.  However, rumors of additional Us tariffs on Chinese goods and the inability to hold above 2774 in the September E-mini gives the bear camp a fundamental and technical edge today.  Fortunately for the bulls, there does not appear to be a high level of concern in place but the net spec and fund long in the E-mini futures possibly recorded another new all-time record high reading and that leaves the market susceptible from a technical perspective.  Resistance comes in at 2788 and 2800 with support at 2770 and 2765.

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 Sep '18 Daily Chart

E-mini S&P 500 Sep '18 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.


The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

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