August 24, 2018

Volume 12, Issue 34

Feature Article

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Metals - Gold

Gold to Finally Rally?

Joshua Graves

December gold has had anything but a successful past few months. It’s been a stairstep down washout for the past several months. Most of this is due to several factors. One would be a lack of geopolitical tension in the world. North Korea and any number of our adversaries around the world have not provoked the US and have not done anything that would warrant a cause for war. We have seen stellar economic data out of the US, and on top of this the Federal Reserve has been quite hawkish over the past few months. The eyes will be on the Jackson Hole conference as we have a speech from Jerome Powell that could give us more details on the Fed’s monetary policy. Right now, we have a very high chance of at least two rate hikes before 2019. The first will come at the next Fed meeting with an almost certainty. The next will likely (75%) come at the December meeting rather than the November meeting. All of these factors put together have been weighing on gold. If we can sustain this recent pop above 1200, we could see gold finally find it’s footing and rally back above 1225. If we rally in December gold, it’s likely due to some sort of correction in stocks. It could also be from a pure technical short covering rally. Right now, we are sitting around the 1200 level on gold and it’s possible we trade between recent lows and 1225 for some time without a chance to the current landscape.

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 Benefiting from Dollar Weakness

Eli Tesfaye

September silver is trading 14.73, up about 19 cents on the day. With the US dollar pulling back from two-year highs, Silver and quite frankly all other dollar-denominated assets are benefiting from it. As of now, the silver is showing “inside week” as per chart. A breakout out of these levels is needed to get a follow-through price action. The last e-view, I wrote about the dollar is in consolidation and poised for a breakout. The US dollar is coming back to that consolidation area. We shall see what will happen when and if the dollar heads up in the direction of the trend.

Today is also the beginning of the Fed meeting in Jackson Hole meeting. I’m sure there will be a possibility in pausing interest rate to slow down dollar rally that is crashing commodities. I’m sure at Jackson Hole, and the Fed will probably try to assess the impact of trade wars on the US and global growth. Silver is heading to its psychological level of 15.00; any dollar recovery will determine any upside price action above that.

The technical landscape favors bulls, as today’s COT (commitment of traders with option report) will probably show a slight reduction in silver shorts. With the recent strength in Silver, the retest of $15.25 price range is likely. A break below 14.45 in September contract, would likely set a new downside pressure forcing the market to go below 14.00. Option play seems to be an effective way to approach this market for a breakout type of strategy.

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 Chart

Silver Weekly Chart

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Energies - Crude Oil

WTI Crude Finds Support; How High Can A Dead Cat Bounce?

Dan Hussey

This week the EIA Petroleum Status Report shaved off an aggressive -5.8-million-barrel draw, taking inventories to 408.4 million barrels (11.8% below their levels one year ago).  As it can be expected from this bullish report, WTI crude prices have responded in kind, trading $5.00 higher from their lows earlier this week.  This was compounded by the fact that US refineries were operating at 98.1% of their capacity, unchanged from last week and very near all-time highs for production (which translates directly to crude consumption).  The heightened US refinery operations, alongside a sizable draw on crude oil inventories, is confirming the strength in WTI crude prices this last week.

From a technical perspective, WTI crude oil futures found a substantial bounce, which is being sustained from the 65.26 inflection zone.  Upside Fibonacci price projections suggest the market could target the $80.00 price area, and technically remains bullish above the $62.89 “line in the sand” for the $65.26 inflection zone.  This scenario seems to be the path of least resistance, and the next logical progression would be to for a market to trade to its technical projected targets (after finding support).  While the market remains above $62.89 (61.8% Fibonacci technical ‘line in the sand’), this price level projects upside technical targets of $80.00 in the near term.  Below $62.89 at this time, would suggest a retest of last support at $55.00-50.00 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.  Price action over the last several months has continued to hold the market above this key line in the sand, and justifies keeping sights on higher prices in the near term.  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.  This week’s rebound in the price of WTI crude, has also correlated with a drop in the value of the USD, and continued USD weakness should be bullish for most commodity prices (with potentially energies leading the way).  Keep a watchful eye and heightened ear for more comments to come out of the US Fed – Jackson Hole meetings, as a clearer picture for US monetary / interest rate policy could help shed a light on the inflation situation (and directly affect the price of commodities relative to USD). 

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 Chart

Crude Oil Daily Chart

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Softs - Sugar

Bulls in Sugar Look for Hope of a Bottom

Joe Nikruto

This week’s comment finds the October sugar futures contract, again, trying to carve out a bottom.  Price action from the previous two sessions has given bulls hope that sugar could be at the beginning of a bottoming process.  With support from energy markets and the thought we could see less surplus in the next year there are ideas the burdensome supply may be priced in.  That was actually the headline from the Hightower group comment Thursday morning – “Already Priced Big Surplus”.  And, it wouldn’t be the first time we have seen the press call for this relentless production to be considered priced in.  It would be easier to get my mind around the idea of a value area for sugar if there wasn’t more surplus sugar on the way.  What we do know is that sugar producers globally have shown very little indication of slowing down.

Fundamentally, there are reasons for a bounce in sugar.  Wire services and commentators have been mentioning them for months. Calls for Brazilian currency strength, continued increased use of sugar for ethanol in Brazil and higher energy prices are all fuel for a move higher. Technically, the size of the managed short fund position is almost as big, at 154k, as it has been all year.  There is still room to run, meaning funds can still be sellers, helping to drive the market lower. But with the size of the position as big as it is, there is possibility of short covering rallies. We attempted to position for a bounce such as this a few weeks ago with inexpensive options but the market did not cooperate instead rolling over and diving to new lows.  This recent two days of positive price action will have bulls and bottom pickers emboldened and pricing out call options.  While the trend is down, really down, one can easily see the lure of using inexpensive options to position for a bounce. It could be especially wise to use options both for scale and sound risk management. The last thing you want to do is try and catch the falling knife with futures and not have stops in place to protect your trading account.

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 - 08/24/2018

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

Market Update - Currency Futures Markets - 08/23/2018

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

Will the Fed show its hand?

Tarik Husseini

Fed Minutes are released today, with the front month Sep 30yr bond contract sitting near the top of the range it has been pinned within for the past six months. Currently the Sep futures contract is trading 145’10, up 10 ticks.  Below is a daily chart that will illustrate this range.

Will the Fed show its hand going into the next FOMC?  Something to watch for in the Minutes is what the Fed considers a neutral rate that neither stimulates nor constrains the economy.  According to Reuters, Federal Reserve Bank of Dallas, Robert Kaplan has stated that he thinks three to four more hikes should put short-term rates in the 2.5-2.75 area, which he believes will be neutral.  The reason the neutral rate is important to pin down is because this is where the Fed is expected to pause its gradual rate hike policy.  The probabilities of a September Fed Funds hike stands at 96%, with an additional December hike at 63% according to the CME. Additionally, discussions of the yield curve may be on the table, as many economists believe a flattening of the curve portends recession.  We have seen short-term rates rise at a much faster pace than long-term rates.  Also, it will be interesting to see if the Fed mentions trade policy, and what effect they believe trade wars may have on the economy. 

This range has been a common theme in the last several articles I’ve written. Fundamentally, if a market is in a range, it conveys that it is in a holding pattern until a catalyst moves it out of the range.  The reason I keep harping on the range, is that it is one of the best technical trading patterns to trade.  A range is not always clearly defined, and it takes some eyeballing.  However, once you identify the range, it is much easier to pull the trigger on trades.  This is because the range gives you entry and exit points and offers risk parameters.  A picture is painted for you in which sellers have painted the highs, and buyers have painted the lows in the prevailing range.  The six-month range is between the 140 handle and 146 handle.  The three-month range is tighter, between 142 and 146. As we are much closer to the top of the range, it makes sense to get short exposure with stops above the high mark in the range.  This short exposure can be attained with futures or options depending on risk tolerance and profit objectives.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-672-0664 or thusseini@rjofutures.com.

T-Bond Sep '18 Daily Chart

T-Bond Sep '18 Daily Chart

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Equities

E-mini S&P 500 Near January High/Pre-selloff level

Michael O'Donnell

As of Thursday afternoon, the September E-mini S&P 500 contract has traded a tick below 2870 as the contract is nearing its January 29 high less than 15 points away at 2889.  As some traders treat former resistance as new support, interest will be piqued should the market trade above the previous high.  Another question on the mind of market participants will be if the level continues to act as resistance since the previous high preceded some of the biggest down days of the year.

Levels such as this represent an interesting time for speculators and hedgers alike.  For those long stocks amid one of the longer bull markets, it begs the question:  will things continue onward and upward, or will there be another repeat of late January and early February? Those looking for a break of the previous high and/or the trendline support pictured below may prefer to position with an options spread or combination of futures and options on futures.

As fate would have it, the previously mentioned high level and trendline support intersection meet near the expiration date for September options.  There are also weekly options on the contract as well. To setup a trade using this information or to discuss any aspect of your trading, the markets, our services and any way I may be able to assist you, please contact me at your convenience.

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.

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

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

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