November 2, 2018

Volume 12, Issue 44

Feature Article

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Metals - Gold

December Gold: Buy in Now?

Joshua Graves

December gold futures have seen more volatility recently as the market continues to try and etch gains and find a reason to be bullish. Over the past week, we have seen $30-40 moves from the lows to highs and there seems to be a sentiment that with the stock market volatility, gold is becoming more of a safe haven than 3 months ago. With today’s recent blowout, non-farm payrolls number of 250,000 vs the estimate of 118,000, the gold market will continue to struggle with the generally positive and upbeat economic data that continues to come from the Fed. All signs still point toward a rate hike in December, and the U.S. dollar would be more attractive as an investment than gold as it yields higher returns than a non-interest-bearing asset such as gold. I believe that a big reason we are still sitting above the $1225 level is more technical than fundamental.

If you look at how gold has traded in recent months, once we traded above the 1220 level and broke to the upside on October 11th, this was a turning point to where now 1220 becomes support as that was congestion for months with failure to take out 1220. The next key level to watch before a strong buy could be warranted is a move above 1246. This is the October 26th high, and traders are sure to watch this level as something to buy if we are to see a close above that level.

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 Becoming Formidable

Eli Tesfaye

December silver is trading at $14.83, up 5 cents on the day. It appears that silver is looking to close “up” for the week. The chart below clearly demonstrates that silver looks to finish higher in “closing price” per weekly basis than the past eight weeks. All of this is a significant development and should put the silver “bears” on notice. As I have stated before, downside pressure for silver is waning, despite the overall long-term trade being down, I still think that higher prices possible in the coming weeks.  A break above 15.00 is needed to attract more upside participants.

The US dollar index showing a “dark cloud” type of candlestick price action on the weekly basis indicates that more weakness is likely. The commitment of traders with options report (COT) measured on Oct 30th, getting released today, will most likely show lightening up of shorts of over 118K held as of Oct 23rd, 2018.

It is important to add that in previous blogs I mentioned that the gold/silver ratio is at a 25-year high. The last blog the spread moved to 83.72. I still think that my target is to breach 80.00 in the coming weeks. In short, Silver will be more of value over Gold.

As I have stated before, “from a technical perspective, a trade below (close below 14.25) on weekly bases could accelerate the downside momentum. 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, also again, Silver has 1000 once contract that is cash settled, an ideal for small accounts or those who want to test the water.

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 Dec '18 Weekly Chart

Silver Dec '18 Daily Chart

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Energies - Crude Oil

Crude Oil 200 Day Moving Average is in Focus

Phillip Streible

Despite having a solid year, up 7.38%, oil futures were the second worst performing commodity in the month of October, down 13.67%. With the market in a firm downtrend it is difficult to find anything to be bullish about. Looking at the technicals the ADX is rising showing the strength of the downtrend is intact and stochastics are in oversold territory indicating a bear market. On the supply side EIA crude stocks are sitting at 426 million barrels which is above the 5-year average at 418 million barrels. Imports have been declining and that is generally supportive but with the China trade war in a standoff its hard to say where the U.S. would be exporting. Cushing stocks have been steadily increasing showing demand maybe stalling.

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

March Sugar Retreats from Highs. Funds Positioned Precariously

Joe Nikruto

This week’s comment finds March sugar retreating from recent new highs. After surmounting the 14.00 level six days ago, sugar has turned south and dropped a full point from those highs which came in at 14.24.  This move lower has coincided with the victory of Brazilian President-Elect, Jair Bolsonaro.  The Brazilian currency had been standing strong in the days leading up to the election providing support to sugar, but as the election has drawn to a close so has higher prices for sugar. Wire services continue to report an anticipated Brazilian production deficit for 2018/2019. This morning widely read market commentator, The Hightower Group, referenced Datagro, a Brazilian analytics firm forecasting 26.38 million tonnes, which could be a 12 year low in Brazilian sugar production. Wire services have also recently pointed to European sugar beet production being much lower as well as a forecast by the Indian Sugar Mill Association forecasting a drop of 11% in Indian sugar production.

 The chart has suffered technical damage. The 10 and 18-day moving averages which had raced up to meet the market in the last week have been left hanging overhead. Today’s close, 13.15, is still almost a full point away from the 50-day moving average, 12.27.  Is sugar headed for that level, the 50- day moving average? The jury is still out, but the recent gyrations in sugar have left the commodity trading funds exposed yet again.  12.61 and 12.54 are levels where newly booked longs will begin to be stopped out.  There is a previous high, 12.56, on the chart which also coincides with the 50% retracement of the rally that started at the beginning of October, 12.52.  That is a lot of numbers in one area and it shouldn’t surprise us if the market chooses to head there to take a look. 

Of interest, in terms of market participants is the recent increase in sugar longs added by the Index fund category, roughly 13k contracts, which is not insignificant. The Index funds hold commodity futures as a hedge against inflation and will re-balance positions from time to time. This increase in their holdings of sugar futures seemed more like protection against inflation as opposed to a garden variety re-balancing. Also interesting in the market participant category is the Commercial trader has sold into this recent rally.  The commercial trader has deep pockets and different motivations than speculators both large and small, but often markets ultimately end up trading in the direction they are positioned.  Bottom line, we are nearing an area that should be instructive. If the market holds above the gang of technical levels we highlighted above that will speak to underlying strength, maybe the market taking the possibility of production deficits seriously. However, I would like to position traders to take advantage of lower prices. Options will allow for reasonable risk-taking in a market that is changing directions as dynamically as March sugar is at this time.

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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Softs - Coffee

Coffee Finishes Strong After Week’s Dismal Start

Tyler Herrmann

The December coffee market continues its turnaround from the recent down-trend’s low of 11.35 on Wednesday. Short covering has accelerated the turn around with the possibility of next year’s production being lowered, also supporting a continuation of the move higher. Support has come from increases in producing country’s currencies which helps producers who sell their crop internationally. Brazil, one of the world’s top producing countries, still has a record high crop from the current production year and their exports for October were up from the previous month and compared to last year. Although Brazil and Vietnam have had great years production wise, outlook for next year looks lower as demand looks to continue improving. The coffee market has the backing to continue this rally to test resistance and continue on to new, recent highs with momentum studies rising to mid-level. Resistance comes in at 121.45 and then at the most recent high of 125.50. A close over first resistance at 121.45 will continue the markets turnaround while a close under 116.75 would reverse the trend back to the downside.

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

 Coffee Dec '18 Daily Chart

Coffee Dec '18 Daily Chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 11/02/2018

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

Lean Hog Prices on the Rise

Peter McGinn

The December lean hog prices rallied this past week, leaving the futures to a more normal discount to the cash market and a narrowed basis. Friday, we saw a rally through the 200-day moving average and close above 58.00. In the near-term, there looks to be weak export demand with record production and high levels of cold storage stocks. Monday, the market opened and gapped higher, but failed to fill the gap that day, eventually closing higher. Yesterday’s trade was down, but still failed to fill the gap from Monday’s opening.

If the market falls in the short term, I don’t see it falling through the 200-day moving average (57.50) or the 58.00 price level. The spread of African Swine Flu in China is driving up the prices of the December contract. If China were to lose 16% or more of their herd then that would equate to all the global trade in pork for 2017. On a technical basis, there is positive momentum now, but it looks that we are in overbought territory with the RSI number starting to creep up to the 65 number (currently 63.62). A breakthrough and close above the 59.50 price level should test the second resistance level of 60.75. It looks that the opening will be higher in the Dec hog contract and I could see this market breaking through $60 price level due to the continued outbreak of ASF.

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.

Lean Hogs Dec '18 Daily Chart

Lean Hogs Dec '18 Daily Chart

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Currencies

Greater Risk of Downside in the USD Ahead?

John Caruso

A stellar NFP jobs number was reported this morning, showing an increase in payrolls to the tune of 250K vs an expected 200K in October. Wage growth was what many traders were focusing on and that expressed a 3.1% y/y reading better than the expected 3.0%. The USD is bouncing back slightly from yesterday’s smack down and looks as if it may actually finish out the week in the red. Thus far, it has been a rather feeble attempt at a rally in the dollar if you ask me. Is this the beginning of the end for the Dollar?  Maybe, maybe not, but our call has been that the USD has more risk on the downside as we wade thru the slowing of the U.S. economic cycle. We were bullish on the dollar back in the spring and through the summer (I’ve got the time stamped emails to prove it), as there was big flight of capital out of emerging markets, European, and Asian currencies as they’re cycles were breaking bad. That left the USD as the only safe haven instrument in the currency space – Remember the U.S. economy was still in an expansion cycle in GDP/Inflation/ and Corp profits and earnings. Looking forward, the dollar looks to have direct competition for its “flight to safety” status, in the likes of gold, fixed income via treasuries, eurodollars, FF futures etc, (although the rallies have been shallow, we think that’s going to change) and utilities – not to mention when the Q4 data begins to be reported “less good” on a y/y basis – and perhaps the Fed takes it’s foot off their “hawkish” stance on interest rate policy, which we also think is a likely scenario.

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.

U.S. Dollar Index Weekly Chart

U.S. Dollar Index Weekly Chart

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Equities

All Eyes on Apple

Jeff Yasak

The overnight markets were mixed with the U.S. indices showing a little strength. The gains were seen coming from investors finishing off a volatile month with a two day 650-point rally in the Dow, mainly by short covering. October had the worst month for global shares since May of 2012. The bulls are looking for some momentum on strong economic data considering the risks coming from European politics and slowing growth in China. In the morning, we have seen better than expected earnings from Cigna and DowDuPont and all eyes will be on Apple after the close. The Labor Department stated that unemployment applications fell by 2,00 to 214,000 near the lows not seen close to 40 years. U.S. jobs report will be released Friday morning. Today’s resistance is 273400 and 276300 with support coming in at 267800 and 265200.

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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