September 7, 2018

Volume 12, Issue 36

Feature Article

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Metals - Gold

December Gold Likely to Sell Off Again

Joshua Graves

December gold is now hovering around 1200, and with the most recent lows being well below 1200, I believe a sell-off down to 1125 is entirely possible given the circumstances. Let’s look at the first reason why we’ve seen such a sell-off in precious metals in general. A very nasty trade war with China, plain and simple. The global trade war with China is likely to get much worse before it gets better, and its ripple effects across markets such as gold where it trades against the US dollar is likely to continue to slide. An additional wave of 200B in tariffs could in fact slow the global economy down, but the economic data we have seen so far has not shown any meaningful impact on the overall US economy. Another catalyst pushing gold futures lower has been the expectations that two additional rate hikes in 2018 will push the US dollar index to new highs once more, thus reducing investor return for non-interest-bearing assets such as gold.

 I believe that the only reason that you are seeing any kind of buying interest in December gold is the emerging market currency crisis in countries such as Argentina, Venezuela, and Turkey. All three countries have seen double digit slides in their currencies and it’s likely to continue. Many in those countries are buying safe haven assets such as physical gold and keeping that market afloat. One thing that could turn the gold market around at least in the interim a break in the NAFTA trade talks, which could take the pressure off gold at least in the interim. Most investors are nervous with stocks at record high levels and could diversify their assets by positioning in gold and other precious metals in case of a broader market correction.

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 Fighting to Hold

Eli Tesfaye

December Silver is trading $14.19, down 3 cents on the day. With the US dollar pulling back in the past few sessions, with a hefty net short non-commercial position from the most recent COT (commitment of traders with options report). Silver is looking for an opportunity to recover from these levels. A quick study of the Dollar index chart on the weekly time frame, suggests that that the index is poised for a breakout. The move by the US dollar from these levels could significantly impact the silver market.

The last e-view, I mentioned that silver is “showing -inside-week- price action.  A breakout out of these levels is needed to get a follow-through price action.” The breakdown from that inside chart formation took silver to test $14.00. The question is how much would market participants push it before it pops again?

With the Fed signaling to not to raise rates near term and China threatening to counter any tariff imposed by the US, traders hoping to capitalize on geopolitical risk type of run to the upside had to be disappointed that market is not reacted positively as well.

Technical perspective, the chart damaged done to the silver market has been severe in that as seen below, you see silver is heading to double bottom with 2016 lows. The market would likely dip below $14.00 for washout type of price action before it holds this level for a considerable time. Markets don’t tend to blow through weekly support as one might expect. Sideways price action is likely for near term.

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 Prices Stabilize

This week the EIA Petroleum Status Report decreased by a sizable -4.3-million-barrel drawdown, settling inventories for WTI crude to 401.5 million barrels (13.2% below their levels one year ago).  Although a rally in price is usually expected with continued drawdowns in supplies of any commodity, I see this most recent pullback as an opportunity for WTI bulls.  It’s very likely that the drawdown in WTI crude inventories is being overshadowed by the 2% drop in gasoline refinery capacity (compared to two weeks ago), which is translated to a continuation slowdown in refinery demand.  If refineries slow down production, they aren’t going to replenish their stockpiles of WTI crude, and the supply chain will crunch (as can price).

From a technical perspective, WTI crude futures continue a period of price discover within a range, which is being sustained from the supportive $65.25 area inflection zone and the $71.00 price area as resistance.  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 the near term, WTI crude futures have seen a multi-day price decline, right into the 61.8% Fibonacci inflection zone at $67.14.  Upside from that area suggest a near term price target at the -23.6% Fibonacci price level of $73.03.

 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’s longer term cycle.  Price action over the last several months has continued to hold the market above this key line in the sand (as well as other shorter term bullish confirmation lines), 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.  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

Short Covering Takes Sugar Market Higher; How Much Longer?

Joe Nikruto

This week’s comment finds the October sugar futures contract working on an eight-day rally. Multi-day rallies in sugar have been hard to come by. Wire services are having trouble finding a fundamental factor to fit to this short-covering rally.  A relatively large decrease in open interest has taken place on this rally. What has traders covering short positions so aggressively? Difficult to say for sure. The fund short position had become rather large at upwards of 190k contracts.  When the positioning of the fund and commercial participants becomes “extreme” there can be violent moves in the opposite direction of the prevailing trend. These short covering rallies in downtrends and often-times dramatic meltdowns in uptrends occur with very little fundamental information to be had. Is there less sugar today than there was two weeks ago? Have large and well-read forecasters changed their outlook on the amount of surplus going forward? Likely not. Still, short covering can feed on itself as traders take profits on profitable positions and can even be forced into new long positions as price action takes the market over technical lines drawn in the market sand.

For our purposes, October sugar is now bumping into one of those lines, the 50-day moving average, 10.87. Having jumped over the 10 and 18-day moving averages with no difficulty whatsoever it feels like the trade is watching anxiously to see if funds will continue to aggressively cover short positions.

In their daily commentary, The Hightower Group, is looking for currency stability in Brazil and India, two of the largest sugar producers, to strengthen the sugar futures market. I am not convinced that it will take anything more than the desire of the fund trader to trim short positions to keep this sugar market on the upswing. Should October sugar be able to get out above the 50-day, 11.15 and 11.60 loom as large targets. Don’t stand in the way of this rally yet, sugar has room to move to the upside and if one is trading aggressively, there could be a trade to be had. Ultimately, supply and demand should reassert itself. An extended rally will provide us a place to take a shot at the short side again.

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 - Grain

Daily Market Update - Grain Futures - 09/07/2018

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 - 09/06/2018

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

The Bears Have an Edge in U.S. Stock Market

Jeff Yasak

The overnight global markets were mixed with the Chinese market continuing to decline while the European and U.S. markets squeaked out minimal gains. The US stock market has not shown an obvious concern for the latest political problems of President Trump, overnight that issue looks to favor the short side.  With fears of a crisis from emerging market currencies and fears of another round of tariffs, one should not minimize the importance of positive data today.  As indicated already, the market remains within a downtrend channel of both domestic and international complications.  So far, anxiety in the marketplace is not extreme and the latest political problem for the White house is not seen as a major threat.  However, to throw off the downside bias, we would need to see strong numbers from the job sector data.  Resistance comes in at 290000 and support at 287500.

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 Sep '18 Daily Chart

 

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