October 19, 2018

Volume 12, Issue 42

Feature Article

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Metals - Gold

December Gold, Setting Up for Big Rally?

Joshua Graves

December gold has exploded out of it’s lethargic trading range over the past several months going back to early August. It’s move higher has been loosely tied to the recent stock market volatility we’ve seen, along with recent spikes to the VIX. Gold has a number of factors that could push the precious metal above the key 1250 level. One factor that recently started making headlines is the fear of substantial economic trouble in Italy over their standoff with the EU that stems from Italy proposing a budget that is outside the EU fiscal rules. This has led to investors selling Italian bonds and buying treasuries and German bonds (and gold for that). It’s something that has the potential to put very serious pressure on European markets, not long after the mess in Greece. It appears that gold isn’t catching a bid this morning but will likely continue to face strong headwinds over strong U.S. economic data, hawkish fed actions, and a likelihood of more aggressive interest rate hikes in 2019.

The earning season has kicked off with companies like Goldman Sachs and JP Morgan posting 20% gains in revenues over the quarter, supporting a healthy and robust economy. Gold is likely to be well supported over recent turmoil in Saudi Arabia, the U.S. stock market volatility, and an aggressive trade war with China to continue. If the current situation between all of the bullish and bearish factors holds, range bound trade is likely. An explosion into bullish territory with December gold would be almost certain if the likelihood of rate hikes in 2019 wanes, and the U.S. dollar index were to pull back below the October 16th low of 94.47.

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 Stays on Defense

Eli Tesfaye

December silver is trading $14.71, up about 10 cents on the day. Once again, silver is on the defensive as it continues to price the Fed's hawkish stance. The strength in the U.S. dollar today is adding a great deal of pressure across the board and silver is no exception. The weekly chart below suggests that the downside pressure is waning, please be cautious as the overall trend is still down. If price closes positive this week in front month December contract, follow through price action to the upside is likely.

In my last blog, I mentioned that the gold/silver ratio is at a 25-year high. Currently, the ration is trading around 83.72. the technical improvement in silver could move this spread below 80.00 in the coming weeks.  

From a technical perspective, a trade below 14.25 in the December contract will accelerate downside momentum. Current upside target is 15.60 to 16.00. Again, from current levels of $14.60, mid 15.00 is likely if the market manages to stay above last week’s low of 14.25.

Bullish Butterfly/bull call options with a limited risk might be ideal in this market, or look at the 1000 ounces mini contract to test the waters.

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

Oil Continues to Slide Lower

Phillip Streible

Oil futures continue to sell off as inventories rise and liquidation from speculators continues. We saw the fourth straight week of inventory builds last Wednesday, with a weekly build of 6.49 m/b. Total inventory stocks are currently 416.441 m/b vs the 5-year average of 413.389 m/b. There was a lot of discussion about how the missing journalist could create tensions between the U.S. and Saudi Arabia, however, it should have no impact on oil supplies. One statistic to pay attention to is oil exports to China. Currently the U.S. has completely halted exports to the largest oil importer while Saudi Arabia and Russia have picked up the slack, therefore, I don’t see any reason for supplies to decline anytime soon. Looking at the technicals, crude oil has completely broken the $70 psychological support and looks to decline to the mid 60’s.

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.

Crude Oil Dec '18 Daily Chart

Crude Oil Dec '18 Daily Chart

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Softs - Sugar

Short Covering, Fundamental Ideas Turn Sugar Trend Higher

Joe Nikruto

This week’s comment finds sugar continuing to rally in dramatic fashion. From 12.20 on October 4 to today’s move over 13.70, sugar has been on a one-way ride higher. Wire services have been struggling to find fundamentals to fit to the price action. In the last few weeks, we have heard of currency strength in Brazil, demand for ethanol, and even pestilence in today’s Hightower report. Apparently, white grubs may be impacting the available supply of sugar in India calling into question how much they can export in the coming months. 

The last COT report found commodity trading funds still short 30k contracts plus. These funds should have been not only stopped out of short positions, but well on the way to being long. Typical trend-followers will only be able to exit long positions on a move below 12.15 and 11.00, which underscores how fast and how far the market has rallied. In the next week or two the stops will catch up with the market and move to higher levels, but if sugar continues to scream higher, it won’t matter much where the stops are underneath. 

Fundamentally, I can’t wrap my head around this rally, short covering should only be able to take this market so far. Luckily, the chart is telling us what we need to know. The trend is up on all but the longest of scales. Traders who are still short should be laboring to establish levels for risk management. Market participants who traffic in overbought/oversold are likely on the edge of their chair waiting for a technical correction that will bring the indicators off the ceiling. The 18-day moving average comes in at 12.30. I wouldn’t be surprised to see a move back to that level in short order. Ultimately, I would like to have short exposure to what I believe will be yet another year of solid production for sugar. But for now, I do not want to fight the tape.

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

Daily Market Update - Grain Futures - 10/19/2018

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 - Livestock

Expect a Reversal Pattern for December Live Cattle

Peter McGinn

In the December live cattle contract on the daily chart, there is a Head & Shoulder reversal pattern to the downside. A close over the 118.325 level would make this market bullish but trade has hit resistance at the 118-118.500 range. I expect a continued sell-off through the 116.000 support level A breakthrough of the 116 level could lead to a continued sell-off to the 114.500-115.000 range. There is a large amount of market ready cattle out there for the next couple months as the USDA estimated cattle slaughter numbers came in at 118,000 head yesterday, making a total of 352,000 head for the week, far up from last week’s number of 351,000, and up from last year’s number 347,000 at this time. This should be putting some downward pressure on the live cattle prices. Cattle on Feed report comes out today at 2:00pm CDT. Estimates are 100.1% of last year for Placements; Marketing for September are expected  at 97% of last year; On-Feed supply on October 1st is expected at 106.4% of last year.

December lean hogs gapped lower, through the 50-day moving average on the open yesterday, and closed at 52.05. I expect the gap to be filled, but sell-off after filling, due to the light demand for pork. Carcass values closed slightly lower and with a significant discount in the Dec lean hogs compared to the cash market which may be a reflection of what traders expect due to the record pork supplies we have late this year.

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

Live Cattle Dec '18 Daily Chart

Live Cattle Dec '18 Daily Chart

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Currencies - U.S. Dollar

U.S. Dollar Stays on Top

John Caruso

Early Look around the World

Asian equities are bouncing overnight; +2.5% in the Shanghai Index to -28% from January, +1.0% in the Nikkei 225.  China reported their usual faux GDP figure overnight, reporting 6.5% which was down from 6.7% y/y.  It’ll likely take more stimulus efforts from the Chinese to boost their economy moving forward.  The US will be keying on the existing home sales figures due out at 9am CST/10 EST. 

Intermediate-term view on Currencies

 The USD remains king of the currency space and if previous weeks highs are breached (95.84 Dec Futures), more near-term upside traction could be gained in the dollar with another possible test of the Aug highs of 96.45. Despite it’s strong technical action, the long USD is a very crowded trade and we still hold the view that there's more downside risk than upside from here on an intermediate term basis. On the other side of the USD, the Euro, continues to slump on negative reported data out of the Eurozone. Lets not forget about gold, which I largely view as a currency. Gold has held it’s near-term bullish posture vs the USD's recent strength which tells me that institutional investors are viewing gold in a positive light on forward looking basis vs the USD as well as other foreign currencies.  We still continue to think that gold will outperform into year-end and well into next year vs outside world currencies, especially if the U.S. economy begins to feel the residual side effects of a slowing world economy – which will be a net negative for the USD.  Sure, you’ll see some inflows into other world currencies if the dollar takes a stumble into year-end/ early next year, and I’m of the belief that the ECB will still attempt to tighten head on into a slowdown, which could help the Euro gain some traction, but with a projected slowdown in the U.S. economy and World economy for that matter, I expect gold to far out perform the World’s currency basket. 

I don’t claim to be the best chartist on the street, but here’s a look at a developing H&S Top on a Weekly Chart in the USD which could suggest a larger down turn to come.

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.

Dollar Index Weekly Chart

Dollar Index Weekly Chart

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Equities

Stocks Tumble as Traders Eye Hawkish Fed

Jeff Yasak

Overnight markets were mostly lower with heavy losses seen in Asia. The U.S. open will start with the jobless claims expecting to show a slight decline from the previous reading of 217,000. A strong labor market and economy will most likely keep the Fed on track for another rate increase this year. Traders will also be looking to the Philly Fed Survey today as soft news can lead to a larger sell-off. There will also be some key earnings after the close with AmEx and PayPal leading the way.

Thursday's support is 2796.00 and below at 2769.00 while resistance is 2837.00 and 2851.00.

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 500 Dec '18 Daily Chart

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