September 21, 2018

Volume 12, Issue 38

Feature Article

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Trading Volatility with Options

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Metals - Gold

Gold Waiting on the Fed for Next Direction

Phillip Streible

With the U.S. dollar hitting a nine-week low versus major currencies on reports that the U.S. and Canada have not reached an agreement on NAFTA, gold has been trading higher this week. Supporting the bullish move the Commitment of Traders report shows the commercials for the first time in 17 years have become net longs.  Watch for the FOMC meeting next Tuesday and Wednesday where according to the CME Fed watch tool there is a 93.2% chance the fed will likely raise rates. Also, keep an eye on developments with Brexit talks with any rejection impacting the pound/euro and therefore the dollar.

Looking at a December daily gold chart the metal has been trapped in a trading range for the past month with $1192/oz as support and $1216/oz as resistance. Most likely a break above or below these numbers will determine the next trend in the market.

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.

Gold Dec '18 Daily Chart

Gold Dec '18 Daily Chart

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Metals - Silver

Gold/Silver Ratio Nears 25 Year High

Eli Tesfaye

December Silver is trading $14.34, up 3 cents on the day. With the US dollar in a correction mode, it is not surprising that metals are seeing a pop. The last e-view, I mentioned the sizeable short position by non-commercial traders and it could be a catalyst for short covering to keep Silver above 14.00. It looks like; near-term lows are in for silver. It is entirely possible to get a recovery follow-through price action. For now, at least, all points to the upside with a weakness in the US dollar.

I wrote about the Gold/Silver ratio before, but I thought I bring it up again with the long-term chart attached below. The interpretation of the chart below, of course, indicates that Silver is cheap relative to Gold. It has been near 25 years as per chart below, therefore, it’s something to note that if you are trying to invest in metals, you might want to consider silver seriously. Silver has both industrial use and precious metal.

From the technical perspective, as I have stated below, Silver is fighting to hold above 14.00. For now, a close below 13.90 will signal farther weakness. A close above 14.50 will signal a reversal.

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 Monthly Chart

Gold Silver Ratio Monthly Chart

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Energies - Crude Oil

Will Demand for WTI Crude Keep Prices Rallying?

This week the EIA Petroleum Status Report showed a draw on Crude Oil Inventories by a decent -2.1-million-barrel drawdown, settling inventories for WTI crude to 394.1 million barrels (2.3% below their levels one year ago).  Crude Prices have responded by stabilizing above $65 a barrel, and continue to try to hold onto the psychological $70 threshold.  The path of least resistance still seems to be higher, and fundamentally driven price rallies can be expected.  While the market has struggled since August to break and hold above $70 a barrel, it can be expected that a large number of stops may be looming above the $71.50 price highs.  Those stops may very well become the fuel for a short covering rally, on a break above.

From a technical perspective, WTI crude futures continue a period of price discovery within a range, which is being sustained from the supportive $65.25 area inflection zone and the $71.50 price area as resistance.  Support has been “bottling up” the lows against the $71.50, creating subsequently higher lows over the last several weeks.  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” from 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, since it seems to now have found (tested) proven 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 medium term.  In the near term, look for prices to hold above $68.00 a barrel and for a break out above $71.50 to follow the $68.00 level holding.  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.

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

Exciting Price Action But, Sugar Remains the Same

Joe Nikruto

This week’s commentary finds March sugar taking over front month status from the October contract for whose last trading date is September 28.  In the last 7 days, the October contract has lost about 400k in open interest while the March ‘19 has gained about 100k. Pretty dramatic change, not to mention the price action!  Want to give a workshop on trend-following that includes examples of when that method did NOT work? Take a look at sugar from the last 10-12 trading days. On 9/5 the sugar rally began to get legs and the commodity trading funds who had built a substantial short position began to be pressured by higher prices. By 9/10 the price of October sugar had traded above 11.00 forcing short traders to capitulate and buy back positions. The next two trading sessions saw sugar continue to rally and take the October contract over 11.50 and the March contract 12.50. This forced trend-followers to begin building long positions. However, that is not to say that the entire fund category flipped from short to long as trend-followers only make up a portion of the fund trader category.

Low and behold, three days later the market melted down 100 points stopping out recent longs and placing the trend-follower close to re-establishing new short positions! Epic trend fail. Because sugar is one of the most “trendy” markets, meaning price trends can develop and sustain resulting in positive outcomes for traders who are properly positioned, it can be highly instructive to examine when the method generates results that are not positive.  With the permission of our dear readers we will save further discussion of the rigors of trend-following for another days’ market missive.

 In the meantime, I would like to freely admit that the drama of the last two weeks price action has me looking at the March sugar chart like a murder mystery whodunit. Why did the market rally, who is behind the volume? Was it commercial participants who started the fire or was it a commodity trading fund throwing in the towel? Sometimes those facts, or fundamental information, can be hard to locate. Luckily, we have technical analysis help us focus on the facts that we can get.  Sugar rallied into significant resistance and so far has not been able to hold the rally. In fact, the price action that took both the October and March contracts to recent highs has been soundly rejected. The March contract remains above one of our favorite technical lines in the sand, the 50-day moving average, 11.58, but it looks heavy.  Despite the drama, sugar currently rests upon technical middle ground. The recent rally has been rejected, but the March sugar futures contract is holding the 50-day, worth mentioning again, 11.58.

Fundamentally, the Hightower group in recent commentary suggested that Indian sugar exports look to remain elevated with the authorities subsidizing its movement. It is a significant quantity of sugar they are looking to export.  Sugar supply so far is ample and looks to stay that way.  If you want to engage in forward thinking the question we must ask is, what can reduce the supply of sugar globally? Until that question can be answered it is likely that the path of least resistance is lower, drama or no drama.

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 Mar '19 Daily Chart

Sugar Mar '19 Daily Chart

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Agriculture - Grains

Soybeans and Corn Rally from Contract Lows

Tyler Herrmann

November soybeans traded higher both Wednesday and Thursday after starting the week trading lower to new contract lows. The market was unable to close above resistance at 850 after trading as high as 855^0 on Thursday. Despite the most recent tariff announcements, support was seen on reports that the US and China are still willing to talk about an agreement. Demand comes in from Argentina’s crushing industry who is buying from the US and exporting their own supply to China. It looks like come October China may run out of other alternatives and may have to come to the US to cover some of their needs. Momentum studies are increasing and could support a continuation higher on a close over resistance. Support comes in at 829^0 and then at the lows of 813^0. Resistance is at 850^0 and then 865^0 with a close over 850^0 needed to continue the trend to the upside.

December corn rallied to 356^2 on Thursday before closing at 352^2, its highest level since the markets drop on the September USDA report. Support came from good export sales and the market saw an increase in call buying on Thursday with talks that the USDA may revise their yield estimate lower in the October report. Momentum studies have crossed up from over sold levels and support a move higher. Resistance comes in at 356^0 and 366^4 with support at 346^6. Trade unable to break yesterday’s high will revert back down to contract lows while a close over 359^4 will continue the reversal to the upside.

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

Soybean Nov '18 Daily Chart

Soybean Nov '18 Daily Chart

Corn Dec '18 Daily Chart

Corn Dec '18 Daily Chart

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Agriculture - Livestock

Market Movers: September 27 Hogs and Pigs Report

Industry experts Dave Hightower, Founding Principal of The Hightower Report, and Dan Basse, President of AgResource Company, discuss trading opportunities in advance of the September 27 U.S. Quarterly Hogs and Pigs report.

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Currencies

Daily Market Update - Currency Futures - 09/21/2018

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

Bearish T-Note Count Intact Below Minimum 119.11



Tuesday's accelerated decline to new lows for the past month's slide leaves yesterday's 119.105 high in its wake as the latest corrective high this market is now minimally required to recoup to confirm a bullish divergence in momentum, stem the decline and expose at least another interim corrective rebound within the past four months' lateral range.  In lieu of such 119.11+ strength it would be premature to bet against a resumption of the secular bear market to new lows below 17-May's 118.105 low.  In this regard shorter-term traders are advised to trail buy-stops to our new short-term risk parameter at 119.11 to protect bearish exposure from 120.175 in the then-prompt Sep contract recommended in 27-Aug's Trading Strategies Blog...

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

10-Year Note Dec '18 240 Minute Chart

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Equities

Stocks Still Climbing

Jeff Yasak

Overnight global markets were generally mixed with the Shanghai and Australian markets showing small losses, with most other markets clawing out minor gains.  The technical bias in the markets remains strong as the fear of the US/China trade war is not damaging investor sentiment.  It might be too early to suggest but is possible that the beginning of inflation is being embraced by investors as a positive, improved pricing capacity by companies can add to profits.   With the E-mini S&P sitting within relative reach to all-time highs and investors unruffled by US/Chinese trade wrangling the path of least resistance remains up.  Close in support is at 2900 while resistance comes in at 2920.

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 Dec '18 Daily Chart

E-mini S&P Sep '18 Daily Chart

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Equities

Pivot Points in E-mini S&P 500

Frank D. Cholly

Pivot points are a great way for traders to pick their entry and exit levels.  This strategy was used by many floor traders because they couldn’t look at the charts while standing in the fast-paced pits, therefore they would calculate their support and resistance levels prior to the open.  There are five price levels which make up the pivot points that are PP (pivot point), R1 (first resistance), S1 (first support), R2 (second resistance) and S2 (second support).  It is common for the market to trade between S1 and R1 for the day, but should the market go above or below these levels than R2 and S2 should provide a much stronger level of support and resistance.  There are various ways to use these figures to trade depending on how conservative or aggressive you are.  Aggressive traders could short the market on a rally to the pivot point and look to take profits on a pullback to R1, while they would do the opposite if the market was currently above the pivot.  Less aggressive traders typically wait for a test of R1 or S2 to get long or short and conservative traders wait for a test of R2 or S2 to get long or short.  Pivot points can also be figured out on a weekly basis for position traders. These figures are mathematically calculated using the previous day’s open, high, low and close. 

Below are today’s daily figures based on the formula I use for the December S&P E-mini.  If you are interested in learning more about pivot points in any market or other strategies I recommend, please contact me at 800-826-1120 or fdcholly@rjobrien.com 

R2- 2958.92

R1- 2949.59

PP- 2931.42

S1- 2922.09

S2- 2903.92

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