July 27, 2018

Volume 12, Issue 30

Feature Article

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Metals - Gold

December Gold, More Downside Expected

Joshua Graves

December gold futures are likely to remain under pressure until the current risk on environment changes, and we see more volatility come back to the market. President Trump recently walked back the rhetoric he has taken with many countries over unfair trade practices. Having said that, he has raised the prospect of a deal with the EU on a long-term trade deal that could involve them buying more US soybean and LNG. This, for the time being, is nothing more than a headline but could obviously build to something more. The prospect of “winning” a trade war isn’t likely, but if China were to blink first in this situation we could equity markets surge and continue to put pressure on safe havens such as gold. A third-rate hike is discounted at 100% odds at the September 25-26thmeeting, with a fourth likely in December as well.

US GDP data will likely put even further pressure on the precious metal following a quite pleasant 4.1% growth number. Though well off high estimates with a 5 handle in front, it’s the best GDP number we have seen in 3.5 years. Investors are likely to continue to pile into riskier assets and press the bets on this news. A technical look at December gold will show that it’s a clear stair step down in a sharp downtrend, with another washout below 1200 likely in my opinion. Gold is likely to find support around 1160-1175 and I believe the market will press anyone else who might be long out of the market before covering the already massive short futures position that the speculative funds currently hold. 

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 Dec '18 Daily Chart

Gold Dec '18 Daily Chart

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Metals - Silver

Silver is Building a Base

Eli Tesfaye

September silver is trading 15.55, up about 5 cents. The chart formation suggest downside pressure is waining. In my last article, I mentioned the downside pressure in silver was building when silver was 15.77. It washed all the way down to 15.18 before it recovered. If the market closes today around where it is now the bulls should be encouraged. The US dollar is trading in a consolidation to sideways price action. In other words, its price structure is weaker than when I wrote about it last. Sideways price action is very good for silver traders, specially those who integrate options, because they could get the play with protection.  Again, contact me for trade ideas in silver right now.

The technical outlook for silver suggest sideways price action and doesn’t appear to be going anywhere fast, at least not today. Actually, this is my favorite price structure. It allows opportunity for non-directional play. Although the White House is coming to some agreement with EU, US-China trade spate is still ongoing with no formal policy or trade negotiation between the two nations. We shall see what will come out of that. Next article, I will write about the recent development that could cause a potential spike in silver price. The weekly chart below in silver shows that last week’s lows needs to hold. Silver needs to trade above 16.50 to get the bulls excited. If the dollar recovers, low 15.00’s are likely.

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 Weekly Continuation Chart

Silver Weekly Continuation Chart

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Energies - Crude Oil

WTI Crude and the Fight Over Trend

Dan Hussey

This week the EIA Petroleum Status Report surprised the market with a sizable -6.1 million barrel draw, taking inventories down to 404.9 million barrels (16.2% below their levels one year ago).  While the drop in inventory numbers is notable (and represents a fundamentally bullish report for crude prices) the price action in WTI crude oil futures has resulted in nearly $10 range over the last two months.  US refineries were operating at 93.8% of their capacity, which has slowed from near record production just a couple weeks ago.  While crude oil has been consumed week over week, the slowdown in gasoline production is indicative of potentially future builds in crude oil inventories, and may be counter acting the fundamentally price bullish consensus that this week’s drop in inventories suggests.

From a technical perspective, momentum indicators showed a clear loss of upside momentum into the $75.00 technical price targets, and once a reversal began, the market entered into a “finding support” mentality.  WTI crude prices found support into the $66.00 Fibonacci inflection zone, and while it remained above trend line support at $63.00, had technical upside price projections into the $76.00 area.  I mentioned this scenario as the path of least resistance in m previous articles, and the next logical progression of the trend was for a pullback to find the next supportive inflection zone.  While the market remains above $63.74 (61.8% Fibonacci technical ‘line in the sand’), this price level projects upside technical targets of $76.40 to $78.70 in the near term.  Below $63.74 at this time, would suggest a retest of last support at $58.00 inflection zones, and below those levels the continuation of the current multi-week and multi-month uptrend may come into questions.

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 a very important “break out higher” indicator for the market.  The fight over trend seems to be all but won by the bulls, which has continued to take the market price higher since June of 2017.  The recent pullback is currently testing supportive price levels that suggest bulls are still buying this market in pullbacks to continue trends higher.  The trend is still up until it’s not, and I believe a break below the $63.74 price level would constitute a reversal at this time.  Technical upside targets were hit, which has resulted in profit taking from the $75.00 to $76.00 inflection zone, and the market has simply pulled back into its next supportive price level.  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 Chart Says Possible Higher Prices Against Bearish Fundamentals

Joe Nikruto

This week’s comment finds October sugar futures laboring to carve out a bottom. After making new lows on July 16, sugar futures found buying interest and promptly spiked 50 plus points that very same day. Interestingly, what appeared to be short covering at first glance took place in a time frame where the fund short position increased by 30k contracts and open interest was little changed. This speaks to a change in ownership where the commercial participant was happy to buy all the contracts the fund trader wanted to sell. This action could be a signal that the bearish fundamental backdrop for sugar, significant surplus and moderating growth in consumption has, for the time being, been priced in. 

A quick look at the charts show what could be a bullish set up or at least a moment of truth for the October sugar futures contract.  After the outside day up on the 16th the market drifted lower but was unable to make new lows. In fact, the October contract now finds itself, having moved higher, just below the 18 -day moving average, 11.29.  Failure to make new lows, knocking on the door of the 18-day moving average and increasing volume are all signs of a market that could be working to put in a bottom.  The commodity trading managed fund category has also increased its short position to 100k contracts. This 100k is well off the 175k short we saw in 2017 but still large enough to place the fund trader in precarious technical territory.  12.00 and 12.25 are levels that will force the fund trader to cover short positions and I consider those very reachable. I am not sure that this, in and of itself, is a fundamental factor that can override the overwhelming bearish theme of large, continuing surplus of actual sugar.

The Hightower group continues to highlight sugar to ethanol in Brazil and we have spoke to this more than a few times due to their coverage. It is a supportive factor.  But likely not one that can rescue sugar from the kind of production we have seen from countries that are good at making sugar.  But, as I have often mentioned, fundamental traders have the clearest picture of the fundamentals near market bottoms and market tops.  To avoid this, we use charts to help us trade what we see and not so much what we “know”.  To that end, what we see on the chart could be a market that is turning up.  Call options for September in the 1150 and above range are affordable and gives a trader 20 days of exposure to a move higher in the October sugar futures contract.  With sugar dancing right on the line, the previously mentioned 18-day moving average, 11.29 and with the fuel in place for a rally fire I don’t expect it will take more than 20 days for this set up to resolve 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

ews that EU and US are Working to Avoid Further Trade Tension Supports the Grains

Tony Cholly

The soybean market rallied this week on the announcement of a farm aid program and on the news EU and US are closer to a trade deal in which the EU will purchase more US soybeans.  However, neither of these developing factors seem to have too much weight behind them when deciding which way the beans move from here.  Europe was already buying US soybeans, which are priced sharply below Brazil prices.  The aid program indicates that the US is not planning to give in and the trade war may be a lengthy one. Resistance comes in at 884, with support at 861 and 852.

Spillover support from the soybean news between US and EU has helped to support the corn market, and the grains as a whole.  Another factor supporting the corn market was a solid week of export sales, coming in at 338,500 tonnes for the current marketing year and 747,500 for the next marketing year.  Weather conditions have been nearly ideal for most of the US corn belt, but there are a few spots that need rain in Iowa, Missouri and Southern Illinois.  Resistance comes in at 378 and 381 with support coming in at 373 and 371.

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.

Soybeans Nov '18 Daily Chart

Soybeans Nov '18 Daily Chart

Corn Dec '18 Daily Chart

Corn Dec '18 Daily Chart

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Currencies

Daily Market Update - Currency Futures - 07/27/2018

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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Equities

Stocks Mixed after Facebook fall and US/EU Trade Deal

Jeff Yasak

The overnight global equity markets were mixed with Chinese and Pacific region stocks lower and other areas showing slight gains.  The disappointing Facebook results were offset by hopes of an improvement in US/European trade relations.  After the close yesterday, Facebook announced revenue and user growth were lower than expected, and plan to decline the next two quarters.  This news made Facebook fall 20%.

The Facebook news clearly damages the potential positive leadership from the tech sector going forward and given the importance of the company, one might expect a much bigger early washout in the overall marketplace.  The S&P from the close yesterday is down online nine points and remains near the upper portion of the huge range up extension yesterday.  Anything hawkish from the ECB could allow for a chop this morning back down to 2830. Resistance comes in at 2860 with support at 2820.

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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