July 20, 2018

Volume 12, Issue 29

Feature Article

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Fundamentals of Energy Futures

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  • Energy Commodities 101
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Metals - Gold

Short Covering but No Change in Gold Trend

Alexander Turro

Gold is coming off a yearly low yesterday but managed to reject the washout to the key 1200 psychological level as the U.S. dollar rose to a yearly high. The precious metal has sold off 11 percent from its April high with soft physical demand as well as trade tensions and rising interest rates continuing to make the dollar surge. Gold has not garnered support from any safe haven demand as the downward bias in the precious metal remains down. However, if the dollar were to come off due to positive trade developments or a slowdown in interest rate hikes may cause the precious metal to turn. Momentum is trending lower but is coming off oversold levels with near-term resistance seen at 1232 and 1240 and support at 1213.

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.

Gold Aug '18 Daily Chart

Gold Aug '18 Daily Chart

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Metals - Copper

Copper Market Washout

Phillip Streible

Copper futures continue to slide lower despite improvements in the fundamentals. Technically the market is oversold according to stochastics and MACD but that confirms the market is in a downtrend. Looking at ADX, which measures the strength of the trend is at 63 and holding steady. Remember that an ADX over 40 indicates that the trend is strong regardless of the market rising or falling. We did a decline in stocks in Shanghai this week, but this could have been merely just a rundown in inventories ahead of slowing demand. President Trump is continuing to put pressure on China by threatening additional tariffs on $500 billion in goods. From a trader’s perspective the market could easily see a slide down to $2.50 if this trade war is dragged out for an extended period so exercise caution on the long side and add to positions on a rising market rather than falling or consider call options with enough time to out last the trade war.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or pstreible@rjofutures.com.

Copper Daily Continuation Chart

Copper Daily Chart

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Energies - Crude Oil

Crude and Crack Spread Looking to Recover

Michael O'Donnell

As of Thursday afternoon, the August crude oil contract is stronger following a nearly $8.24 decline from the high made on July 3.  On July 5, my article noted the potential for the market to reverse following the bearish reaction to a large draw in inventory.  Yesterday’s EIA had a build in inventories and while that is fundamentally bearish, prices have recovered after testing lows around $67 the last couple of days.

While the market has held $67.50 recently it has also not held $70 today and the market is weighing a number of factors, such as:

  • United States production at 11 million barrels per day at the highest level it has been
  • OPEC quota compliance dropping, another sign of more production
  • Refinery capacity rates which are still high while easing somewhat this week
  • Supply and demand concerns from a number of geopolitical participants

Should $70 continue to act as resistance, it is possible the technical action from today and yesterday is a short squeeze prior to re-testing the $67.50 level.

This could be the case considering a number of spread markets covered on our desk, including but not limited to calendar spreads in WTI crude, WTI Brent and the crack spread between WTI crude and RBOB gasoline pictured below.

Looking at the October spread and the continuation chart below, it is clear the relationship has held above recent lows ahead of a potential busy driving and hurricane season.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or modonnell@rjofutures.com.

RBOB vs WTI Crude Oil Crack Oct '18 Daily Chart

RBOB vs WTI Crude Oil Crack Oct '18 Daily Chart

RBOB vs WTI Crude Oil Crack Daily Chart

RBOB vs WTI Crude Oil Crack Daily Chart

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Energies - Natural Gas

Natural Gas Looking for Support on Downward Slide

Jeff Ratajczak

The Sep ‘18 natural gas futures contract is clearly down today.  For five days now, the trend has been going straight down.  It is reaching toward the bottom of the trading range and is challenging the Dec ‘18 low of $2.529.  If it closes below $2.650 look out below.   A close above the area of $2.800 is needed to reverse the trend and bring bullish forces back into play.  Momentum studies are trending lower and are getting near oversold levels.  Caution should be exercised, because we are still waiting for a divergence to change our bias toward the direction of the market. 

The storage number today is 46 bcf, right around the 3-yr range.  Last week’s number of 51 bcf was average at best.  Production increases balance between normal or slightly below normal weather around the country and heat in the South and West.  I still like the exposure to the short side of the market, with caution toward a change in direction due to a reversal in momentum studies like RSI and MACD.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-874-8110 or jratajczak@rjofutures.com.

Natural Gas Sep '18 Daily Chart

Natural Gas Sep '18 Daily Chart

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Softs - Cocoa

Short-Term Bearish Behavior in Cocoa as We Await More Grinding Data

Peter Mooses

After the release of the European grinding data, cocoa traded in a 200-point range on July 16 and closed at 2406. The data showed a 7.3% gain in European grindings and would be normally viewed as a bullish release but instead we saw the opposite. Longs liquidated, profit taking took over the market. Technical support levels were broken and since the release we have seen NY September futures trade as low as 2288 as of Thursday afternoon. A continued close below the 9-day moving average will continue to hurt the technical side of the trade. The positive side of the European data is it shows demand is coming back for cocoa which has been something traders have been waiting for. The question now is supply better than anticipated?

The market is in a “wait and see” approach as the North American and Asian grindings will be released later this week. The North American data which will be released after Thursday’s close should be in line with Europe’s data. More positive demand news should lead to a rally next week – and if the technicals can take this market higher again. El Nino is also in the back of some trader’s heads. If weather comes back into play, supplies can be hurt further and could help cocoa futures head back to 2500.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or pmooses@rjofutures.com.

Cocoa Sep '18 Daily Chart

Cocoa Sep '18 Daily Chart

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Softs - Coffee

September Coffee Falling Fast

Adam Tuiaana

The struggle continues with September coffee prices. Traders continue to be focused on the extremely bearish supply side of the equation. Although we’ve seen an upswing in the demand for coffee, The Hightower Group reported that there is still a “record high Brazilian crop to absorb”. Note to traders, when the words “record high” are used when describing the upcoming supply situation (for any crop), use caution when taking a position against such news.

Weather forecasts in major growing areas of both Brazil and Vietnam continue to be positive, adding continued pressure to September coffee prices. Also, let’s keep in mind that nothing has really changed from tariff talks, which will perpetuate uncertainty and the likelihood of a “risk-off” mentality when analyzing many of these commodities.

On the technical side, a race to the 106.90 corrective low from July 6. If this level is violated, we can potentially see some volatile follow-through selling, down to the 105 level fairly quickly.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-536-8601 or atuiaana@rjofutures.com.

Coffee Sep '18 Daily Chart

Coffee Sep '18 Daily Chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 07/20/2018

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 - Grains

Trade War Repercussions for U.S. Agriculture

By Patricia Mosley, Natalie Denby and Bluford Putnam

In the first half of 2018, the U.S. Republican Administration launched a full-fledged effort to use tariffs as a weapon to protect U.S. manufacturing jobs and to force a radical re-write of trade pacts and tariff practices around the world. The response from the rest of the world, from China to Europe to Canada and Mexico has been tit-for-tat tariff increases on U.S. exports as well as shifts in buying habits away from U.S. products. While many parts of the U.S. economy will be impacted, U.S. agriculture has received the most attention as a potential target for retaliation. In short, whether the U.S. will be able to protect manufacturing jobs is not clear (and the subject for future research), but U.S. agriculture is going to pay a very high price. With U.S. agriculture in the spotlight for tariff and non-tariff retaliation, we focus our research on why soybeans will feel a much greater impact than corn.

To read the full article, please click here.

Corn versus Soybeans

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Currencies

US Dollar has Counter Trend Action, But Ultimately, We Expect Trends to Continue

Tony Cholly

While the president has a small chance of restraining the Fed, comments challenging the Fed have had a knee-jerk reaction of pulling the dollar back from the highs yesterday. However, it is possible that the presidents concern of the international trade threat associated with higher USD is an argument that the Fed will consider in their policy decisions.  In other words, not because of what the president said, but because of the real actual negative potential impact on US export competitiveness the Fed will have to pay attention to the rising dollar.  Therefore, an intermediate top appears to be in place in the dollar and some normal back and fill action is likely considering the thin US economic report slate today.  Initial corrective targeting in the September dollar index is seen down at 94.60 but ranges are likely to be narrow unless there is a surprise over the weekend in the trade war.

The USD made a new contract high on the rally and momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated.  Next upside target is 95.80.  Resistance comes in at 95.30 with support at 94.60.

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

US Dollar Sep '18 Daily Chart

US Dollar Sep '18 Daily Chart

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Equities

Stocks Mixed Post Open

Bill Dixon

The stock indices are posting mixed results in the early going this morning.  Thus far, only the Nasdaq is in the green, while the Dow, S&P, and Russell are all lower.  Tariff talks and the lack of any signs of resolution or compromise continue to hang over the market, but the indices have been relatively resilient.  The Nasdaq and S&P continue to hold near the upper end of the upward channel we’ve been respecting since the 2016 lows.  The Dow remains in the channel but doesn’t appear to be quite as strong as the other two. 

News is virtually nonexistent today.  We have a Baker-Hughes Rig Count this afternoon, but I don’t expect that to influence the directions of the indices in the slightest.  President Trump has been tweeting his feelings about the Fed continuing to hike rates, and that seems to have rattled the currency markets.  The dollar has sold off heavily since his initial statement condemning the strong dollar and the Feds roll in strengthening it.  I’m not sure that they’ll suddenly reverse course on account of him expressing his opinion, but we’ll continue to monitor the situation.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5342 or bdixon@rjofutures.com.

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

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

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Interest Rates

S-T Mo Failure Tilts Range-Constrained T-Notes South



Overnight's break below this month's 120.00-to-119.30-area support confirms a bearish divergence in momentum that defines 06-Jul's 120.20 high as the end of the rally from 13-Jun's 118.295 low. By breaking 10-Jul's 120.00 initial counter-trend low detailed in the 240-min chart below, the market has also identified 13-Jul's 120.125 high as the latest smaller-degree corrective high that the market is now required to recoup to render the sell-off attempt from the 120.20 high a 3-wave and thus corrective affair consistent with a broader bullish count. In lieu of such 120.13+ strength further and possibly accelerated losses within the past six months' range should not surprise. In this regard 120.13 is considered our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.

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

T-Note Sep '18 240min Chart

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