RJO FuturesCast

In the early morning trade after better than expected May non-farm payroll number this morning with a reading of 13.3%, gold has sold-off more than $40 an ounce and currently trading at $1681.0. The payroll number was supposed to come in over 19%, so this was seen as a big positive in the big V-shape recovery we are having despite all the recent chaos in this country over the past few months. After this week’s trading and today’s job report, gold has lost some of its safe-haven buying as it broke new weekly lows this morning. Poor global weekly reports and with the EU announcing a 1.3 trillion-euro stimulus package, gold has not been able to get a bounce to hold onto yesterday’s gains hinting the COVID-19 rally could be losing its steam. Look for support in gold roughly between $1670-$1650 or a breakout above yesterday’s high of $1729 an ounce.

The North American session has begun with the weekly initial jobless claims which showed the U.S. added 2.5 million jobs in May against expectations of losing over 8 million. While the silver market may not be shedding its gains as much as gold, the charts are showing some weakness after a rally last week. Although traders were not presumably expecting to see data reflecting jobs returning faster than expected, its difficult to fully grasp the extent of pain that’s still present within the labor market. We would like to see metals such as gold and silver sustain yesterday’s recovery move, when the central banks like the ECB step forward with a 1.3 trillion stimulus package.

July silver may see a failure of $17.50, with the possibility of the session testing $17.20 if this occurs. Seeing as there has been a glimmer of hope from recent economic data, this is to be expected. July silver needed a pullback in order to potentially test resistance of $18.00.

Oil rose to a three-month high ahead of the upcoming OPEC meeting amid data showing the economy defied expectations and added jobs in May. The OPEC plus meeting was expected to be canceled next week due to non-compliance by Iraq, however, it would appear that the meeting will take place this weekend with Russia indicating that it would not attend unless an agreement would be set. An extension of cuts with full compliance would include a removal of over 7 million to upwards of 9.7 million barrels per day. However, following July OPEC plus supply cut will be reduced by 2 million barrels a day and therefore you will need to see an increase in demand to offset return of supply as WTI approaches $40 a barrel. Notwithstanding, oil vol (OVX) remains highly elevated and the market bearish trend with today’s range seen between 30.66 – 38.67.

Economically, the world is in an overall slowdown. People aren’t spending money on non-essential items for the most part, weighing on chocolate sales. The demand of cocoa is down, if consumers aren’t spending money on chocolate due to covid-19 restrictions, this will only pull cocoa prices lower than before the pandemic when demand was already a concern. Supply concerns continue to provide support though, mainly due to output concerns and bearish weather patterns.

The equity markets have rallied, but commodities haven’t followed, especially in the softs. With so many uncertainties remaining and lack of economic growth which is needed for people to feel comfortable to start spending money on luxuries and not just on necessities, cocoa futures could stay in the 2350-2500 range for the summer months. If another wave of coronavirus occurs globally, look for commodities like cocoa to take another hit lower – prices we saw in March will be tested.

The coffee market has been able to gauge the level of return demand from the fast-paced re-opening of the world economy, and it has been a rough start back to say the least. July coffee prices took a dive to violate the 100 level, which should have been a good support area. Although many factors should have been able to support higher coffee prices, we have only seen weakness. Some demand has returned to coffee with the re-opening of the economy, but it has not been nearly enough to offset the upcoming large Brazilian crop that will ultimately need to find a home. Major factors such as continued strength to record highs in the US stock market, a weaker US Dollar and strong Brazilian currency have still not been able to lend support to coffee prices. We should expect to see the same until all restaurant businesses on this planet return to full steam to fill the massive void left unsatisfied by “home demand”.

On the technical side, the violation of the 100 level in July coffee prices should signal a continued move lower, and 100 now becomes our new resistance area. Rather than trying to call a bottom on this market, traders should be advised to follow the trend at this point.

Posted on Oct 14, 2022, 07:42 by Dave Toth

On the heels of mid-Sep-to-early-Oct's steeper, accelerated, 3rd-wave-looking recovery, the past week-and-a-half's boringly lateral chop is first considered a corrective/consolidative event that warns of a continuation of the uptrend that preceded it to new highs above 04-Oct's 891.0 high.  This count remains consistent with our broader base/correction/recovery count introduced in 13-Sep's Technical Blog following that day's bullish divergence in short-term momentum above 07-Sep's 809.5 minor corrective high detailed in the hourly chart below.

The important takeaway from this month's lateral, sleepy price action is the definition of Wed's 851.5 low as the end or lower boundary of a suspected 4th-Wave correction.  A failure below 851.5 will confirm a bearish divergence in daily momentum and defer or threaten a bullish count enough to warrant non-bullish decisions like long-covers.  A failure below 851.5 will not necessarily negate a broader bullish count, but it will threaten it enough to warrant defensive measures as the next pertinent technical levels below 851.5 are 13-Sep's prospective minor 1st-Wave high at 813.8 and obviously 08-Sep's 766.0 low.  And making non-bullish decisions "down there" is sub-optimal to say the least.  Per such, both short- and longer-term commercial traders are advised to pare or neutralize bullish exposure on a failure below 851.5, acknowledging and accepting whipsaw risk- back above 04-Oct's 891.0 high- in exchange for much deeper and sub-optimal nominal risk below 766.0.

On a broader scale, the daily log scale chart above shows the developing potential for a bearish divergence in daily momentum that will be considered confirmed below 851.5.  This chart also shows the past month's recovery thus far stalling in the immediate neighborhood of the (888.0) Fibonacci minimum 38.2% retrace of Apr-Sep's entire 1128 - 766 decline).  COMBINED with a failure below 851.5, traders would then need to be concerned with at least a larger-degree correction pf the past month's rally and possibly a resumption of Apr-Sep's major downtrend.

Until and unless the market fails below 851.5 however, we would remind longer-term players of the key elements on which our bullish count is predicated:

• a confirmed bullish divergence in WEEKLY momentum (below) amidst
• an historically low 11% reading in out RJO Bullish Sentiment Index and
• a textbook complete and major 5-wave Elliott sequence down from 29-Apr's 1128 high to 08-Sep's 766.0 low.

Thus far, the market is only a month into correcting a 4-MONTH, 32% drawdown, so further and possibly protracted gains remain well within the bounds of a major (suspected 2nd-Wave) correction of Apr-Sep's decline within an even more massive PEAK/reversal process from 17-May's 1219 high on an active continuation basis below.

These issues considered, a bullish policy and exposure remain advised with a failure below 851.5 required to defer or threaten this call enough to warrant moving to a neutral/sideline position.  In lieu of such weakness, we anticipate a continuation of the past month's rally to new highs and potentially significant gains above 891.0.

June US dollar futures are trading slightly higher on Friday morning for the first time in seven sessions. The safe-haven qualities of the USD have gone to the wayside as successful economic openings become headline news, and the “do-whatever-it-takes” policy of the Fed begins to weaken the world’s reserve currency. A rise in rates is helping to support the greenback near 96.80 this morning. The longer-term theme hasn’t changed, and foreign currencies are beginning to tell that story. The euro blasted higher this week, trading along 1.1335 Friday morning after a breakout from 1.10. The currency of the EU is likely to show the most relative strength if the dollar continues to weaken. Commodity currencies, like the Aussie and Canadian dollar, have done well as the price of oil rebounds to the $40 level. There is a paradigm shift happening in the currency space right now, and the days of “King Dollar” may be in the rearview mirror.

Looking at the September 10-year note we see some consolidation after interest rates hit their low in March. We have since been trading in a range, and although the stock market continues to rally, treasuries are very much still focused on current economic decimation. Traders will need to watch if this consolidation continues ahead of the next FOMC meeting on June 10^th. The fed has been diligent through this crisis and the scheduled meeting may introduce new monetary policy tools. It is of our opinion that the name of the game is still about liquidity and money supply. Those are the keys to economic decisions by Fed chair Powell.

10-year on technicals in the September contract has important support at 138’110, and this level will need to hold if we want to see continue consolidation or rangebound movement. A break of this level we could see the contract trade pretty quickly to 138’000 and lower. The market remains poised to test the higher range at 139’040 and a break of this with supporting fundaments we can see a test of 139’110 or higher.

This morning’s non-farm payrolls data were expecting to see a figure in the neighborhood of -7.7M and an unemployment rate of about 19.8%. Instead we added 2.5M jobs (about 3.1M of that was private payrolls w/ the losses largely coming from local government jobs) and saw an unemployment rate of 13.3%. It is safe to say that while stocks have discounted most, if not all, the bad news that you see or read about, but it did not expect this kind of number. The Dow is up 700 (2.65%), the Nasdaq is up 130 (1.37), the S&P is up 63 (2%), and the Russell is up 55 (3.77%). It is hard to say where this number takes us with the other indices, but the Nasdaq has now eclipsed the pre-shutdown highs.

The market has come back to an incredible degree in a very short period. I can understand the stance that we are due for a pullback given all the headlines out there. However, you could also argue that we’ve seen the pullback that everyone was calling for prior to the shutdowns. If we continue to see data anywhere near what we did today, a selloff of significance becomes increasingly unlikely.

Posted on Nov 08, 2022, 07:51 by Dave Toth

In Fri's Technical Webcast we identified a minor corrective low at 2.6328 from Thur as a mini risk parameter the market needed to sustain gains above to maintain a more immediate bullish count.  The 240-min chart below shows the market's failure overnight below this level, confirming a bearish divergence in very short-term momentum.  This mo failure defines Fri's 2.8172 high as one of developing importance and a parameter from which very short-term traders can objectively base non-bullish decisions like long-covers.

Given the magnitude of the past three weeks' broader recovery however, this short-term momentum failure is of an insufficient scale to conclude anything more than another correction within this broader recovery from 26-Sep's 2.1877 low.  Indeed, overnights failure below 2.6328 only allows us to conclude the end of the portion of the month-and-a-half rally from 31-Oct's 2.4822 next larger-degree corrective low.  2.4822 is the risk parameter this market still needs to fail below to break the uptrend from 18-Oct's 2.3526 low while this 2.3526 low remains intact as the risk parameter this market needs to fail below to break the month-and-a-half uptrend.  From an intermediate-to-longer-term perspective, this week's setback falls well within the bounds of another correction ahead of further gains.  This is another excellent example of the importance of technical and trading SCALE and understanding and matching directional risk exposure to one's personal risk profile.

The reason overnight's admittedly minor mo failure might have longer-term importance is the 2.8172-area from which it stemmed.  In Fri's Technical Blog we also noted the market's engagement of the 2.8076-to-2.8159-area marked by the 61.8% retrace of Jun0-Sewp's 3.2758 -2.1877 decline and the 1.000 progression of Sep-Oct's initial 2.1877 - 2.6185 (suspected a-Wave) rally from 18-Oct's 2.3526 (suspected b-Wave) low.  We remind longer-term players that because of the unique and compelling confluence of:

• early-Aug's bearish divergence in WEEKLY momentum amidst
• historically extreme bullish sentiment/contrary opinion levels in our RJO Bullish Sentiment Index
• an arguably complete and massive 5-wave Elliott sequence from Mar'20's 0.4605 low to Jun's 4.3260 high (as labeled in the weekly log active-continuation chart below) and
• the 5-wave impulsive sub-division of Jun-Sep's (suspected initial 1st-Wave) decline

The recovery attempt from 26-Sep's 2.1877 low is arguably only a 3-wave (Wave-2) corrective rebuttal to Jun-Sep's decline within a massive, multi-quarter PEAK/reversal process.  Now granted, due to the magnitude of 2020 -2022's secular bull market, we discussed the prospect for this (2nd-Wave corrective) recovery to be "extensive" in terms of both price and time.  A "more extensive" correction is typified by a retracement of 61.8% or more and spanning weeks or even months following a 3-month decline.  Per such, the (suspected corrective) recovery from 26-Sep's 2.1877 low could easily have further to go, with commensurately larger-degree weakness than that exhibited this week (i.e., a failure below at least 2.4822) required to consider the correction complete.  Indeed, the daily log chart above shows the market thus far respecting former 2.6185-area resistance from 10-Oct as a new support candidate.

These issues considered, very shorter-term traders have been advised to move to a neutral/sideline position following overnight's momentum failure below 2.6328, with a recovery above 2.8172 required to negate this call, reaffirm the recovery and re-expose potentially significant gains thereafter.  For intermediate- and longer-term players, a bullish policy and exposure remain advised with a failure below 2.4822 required to threaten this call enough to warrant neutralizing exposure.  We will be watchful for another bearish divergence in momentum following a recovery attempt that falls short of Fri's 2.8172 high that would be considered the next reinforcing factor to a count calling that 2.8172 high the prospective end to the month-and-a-half 2nd-Wave correction.  In lieu of such, a resumption of the current rally to eventual new highs above 2.8172 should not surprise.