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October 2014 Archives

October 1, 2014

Are Oversold Gold Prices Due for a Bounce?

Wednesday, October 1, 2014

Gold bulls continue to shed their net-long positions, with the most recent Commitment of Traders report showing that non-commercial traders (usually large speculators) shed nearly 12,000 net-long positions for the reporting period ending September 23. Even small speculators are staring to throw in the towel on long Gold positions as non-reportable traders liquidated nearly 3,400 net long positions.

Fundamentals

The much maligned Gold market continues to struggle as a strengthening U.S. Dollar is keeping commodity price gains in check. Gold appears to have lost some of the "safe haven" asset buying by traders given its relatively poor price performance of late, despite increasing geopolitical turmoil in Ukraine, Iraq, and now Hong Kong, as pro-democracy protestors have taken to the streets in hopes of bringing free elections over the objections of Chinese state leaders. Traders are looking ahead to the potential of higher U.S. interest rates some time in 2015 as a catalyst to buy U.S. Dollars, which in turn makes commodities valued in U.S. Dollars more expensive to non-Dollar buyers. This is hurting demand for commodities in general and in particular for Gold prices as precious metals do not pay a return and actually cost money to hold. So holding Gold is less attractive in a rising interest rate environment. Gold bulls will note that the upcoming festival season in India usually brings about increased physical demand for Gold and with prices near 1 year lows, may spur additional buying. However, it may be difficult for Gold prices to stage any meaningful rally outside of some short-covering buying longs if the U.S. Dollar continues to strengthen.

Technical Notes

Looking at the daily continuation chart for Gold futures, we notice prices trying to consolidate just above the 1200.00 price level. A fall below this psychological support level could spur a test of the 2013 lows near the 1180.00 price area, where in the past several months increased buying interest has been found. Below 1180.00 we see some chart support near 1150.00 with the next major support area not seen until 1000.00. The 14-day RSI has reached oversold levels, which may signal that a short covering rally may be near. Especially if weak longs rush to the exits should prices rise above the 20-day moving average (near 1236.00). 1181.40 is seen as the next support level for front month Gold futures, with resistance seen at 1236.10.

Mike Zarembski, Senior Commodity Analyst


October 2, 2014

Important ECB Meeting Looms for Euro

Thursday, October 2, 2014

The Euro is slightly firmer this morning, giving the currency a temporary reprieve from bearish market forces. The currency received some support from profit-taking in the US Dollar, which could be viewed as overbought versus the major currencies. Although it doesn't appear that European leaders are complaining about the stronger Dollar, a stronger greenback may have a positive impact on European exports, which could viewed as relatively cheap. This may also stimulate inflation, which would likely be viewed positively by the ECB.

Fundamentals

ECB Chair Draghi pledged to begin asset purchases in Europe, similar to the quantitative easing policy the Federal Reserve has in place in the US. The Euro sell-off accelerated on the news, but there is talk that the size of the asset purchases could be much smaller than anticipated. This could be viewed slightly favorably. This could be as important an ECB meeting as we have had in a long time. Traders are hopeful the central bank will pay out a blueprint of its asset buying program, which would give traders a clear outlook on what the ECB intends to do. More than likely, the ECB language will offer enough ambiguity to give the bank flexibility. It will be a delicate balancing act for the Draghi regime. On one hand, the European economy has faced major headwinds and may need aggressive monetary policy to stave-off contraction. On the other hand, if the Euro freefall continues, inflation could spin out of control and the ECB may later be fighting the uphill battle of keeping it in check.

Technical Notes

Tuning to the chart, we see the December Euro contract blowing through support at the 1.2750 level without so much as a hiccup. The next significant area of support the Euro may encounter is near the 1.2400 level. The multi-month sell-off has resulted in extremely oversold levels on the RSI indicator.

Rob Kurzatkowski, Senior Commodity Analyst


October 3, 2014

Will Non-farm Payrolls Stop Stocks Slide

Friday, October 3, 2014

U.S. Bond bears have been thwarted in their attempts to send yields higher as the weakness in equity markets combined with increasing incidents of global unrest have sent investors back into U.S. Treasuries. The last up move in yields for 10-Year Treasuries found resistance at the 200-day moving average which has stopped the yield rally since April. This morning's Non-farm Payrolls report could be the next catalyst for 10-Year Note yields which are currently near 2.40% and range bound between support at 2.30% and resistance at 2.62%.

Fundamentals

The beginning of the 4th quarter has not been kind to equities as the major U.S. Indices are in the midst of a corrective phase. So far the slump has been minimal, despite some of the talk from market pundits on the major financial shows, with the S& P 500 down just under 4% from all time highs. While short-term momentum currently favors equity bears, we should note that we are still over 40 points above the August lows, which was the last time talk was abound about the start of a major stock market correction, only to see the benchmark indices race to new all-time highs 4 weeks later. This morning, traders will be keeping their focus on the always anticipated release of non-farm payrolls for the previous month, although the September report will be of particular interest to see if the U.S. Bureau of Labor Statistics will revise higher the disappointing 142,000 jobs created figure reported in the August report. The forecast for private sector jobs is a bit more encouraging as the ADP National Employment Report shows 213,000 private sector jobs were created in September, with 88,000 of those created by small businesses. Estimates for this morning report seem to vary widely with the general consensus calling for a gain of around 210,000 jobs. However, traders may really be expecting the figures to come in even higher than the consensus to account for the "anomaly" of last month's figures. The unemployment rate is expected to remain unchanged at 6.1%, but economists are more likely to focus on the so called U6 employment rate which takes into account part-time workers who would rather have full-time employment. Here the rate is 12.0% and is a closer indicator to the true employment situation in the U.S.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice that the trend-line drawn from the October 2013 lows is being tested. This line has withstood previous price corrections this past year so a successful defense is critical for bullish traders. Lurking below this trend-line is the 200-day moving average (MA), which is currently hovering just below the 1900.00 price level. Failure to hold above the 200-day MA would provide further momentum for bearish traders and signal a potential move towards major chart support around 1850.00. The 14-day RSI has turned weak, but not yet at oversold levels with a current reading of 36.36. Chart support is seen at the August 8 low of 1890.25, with resistance seen at 1955.50.

Mike Zarembski, Senior Commodity Analyst


October 6, 2014

U.S. Dollar Soars on "Solid" Non-farm Payrolls Data

Monday, October 6, 2014

The market's reaction to Friday's employment figures was mixed, with strong gains seen in equity indices and the U.S. Dollar, while commodity prices -- especially precious metals and energies -- fell sharply. U.S. treasuries were mixed, with rising yields in the short-end of the curve, while long-term bond yields fell, which sent the 2-Yr/30-Yr yield curve to 2.57%.

Fundamentals

The employment picture turned a bit brighter in September, as the Labor Department reported 248,000 jobs were created. Possibly even more important was the upward revision of the August employment totals to 180,000 jobs created, which is up 38,000 from what was originally reported. The unemployment rate also declined, breaching the 6% barrier to 5.9%, which is the lowest level since mid-2008. Before feeling too optimistic about Friday's data it should be noted that the labor participation rate fell to 62.7% from 62.8%, which is near three-decade lows. As discussed in Friday's Xpresso, a broader gauge of U.S. employment is the so-called U6 figure, which includes part-time employment as well as discouraged workers. Here the rate fell 0.2% to 11.8%. Average hourly earnings fell by $0.01 to $24.53, which keeps one of the major concerns of Federal Reserve officials still on the table, as wage inflation remains muted. While the September employment report was solid, it is likely to do little to alter the market's beliefs that the Fed will begin to raise interest rates sometime in mid-2015.

Technical Notes

Looking at the weekly continuation chart for the U.S. Dollar Index futures, we notice the seemingly "parabolic" rise in the index, which has risen to highs not seen since the summer of 2010. It appears that the index has broken out from the consolidation phase drawn from the 2005 highs and the 2008 lows. The 14-day RSI has moved well into over overbought territory, with a current reading of 82.95. The next resistance level is seen at the June 2010 high of 88.80, with support found at 84.78.

Mike Zarembski Senior Commodity Analyst


October 7, 2014

Crude Grind Continues

Tuesday, October 7, 2014

November Crude Oil futures continue to trade near the $90 level, as fundamentals play tug-o-war with the market. On one hand, the lack of geopolitical threats to supply, ample inventory levels, and a strong US Dollar weighed on prices. On the other hand, the US economy continues to show good job growth, which bulls are hoping will stimulate demand. Additionally, the market remains technically oversold, which could support prices in the near-term.

Fundamentals

It is difficult to predict upcoming US inventory levels, as the number of Golf Coast refiners coming back online is unknown. However, traders may err on the side of larger builds. While the US job market continues to show marked improvement, the same cannot be said for the rest of the globe. German industrial output fell 4% from July to August, which is a significant decline for Europe's largest economy. This was the largest month-over-month decline for the German industrial sector in over 5 1/2 years. Tomorrow's EIA inventory report is expected to show US stocks increasing to the tune of 2 million barrels. Gasoline inventories are expected to have fallen 500,000 barrels for the week. Traders may want to keep an eye on the gasoline inventory numbers, as a bigger drawdown could be seen as bullish, even if Crude inventories themselves are larger than expected.

Technical Notes

Turning to the chart, we see the November Crude Oil contract consolidating just above the 90.00 level. Prices failed to sustain a breakout above the downtrend line and were also unable to manage a confirmation of a small double-bottom, suggesting prices could continue to be in a downtrend. This is further evidenced by the pattern of lower highs and lower lows. The oversold conditions on the daily chart could be seen as supportive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

October 8, 2014

"Wait Till Next Year" Cry Natural Gas Bulls

Wednesday, October 8, 2014

Large speculators remain net-short Natural Gas futures, but have slowly reduced their position the past week. According to the most recent Commitment of Traders report, non-commercial traders reduced their net-short position by nearly 3,800 contracts to 177,631 contracts. Commercial traders reduced their net-long position by over 10,000 contracts during the same reporting period. Only non-reportable traders, which are normally small speculators, are trying to pick a bottom for Natural Gas prices, as they added over 6,200 new net-long positions last week for an overall net-long position of over 48,000 contracts.

Fundamentals

Despite storage levels that trail the 5-year average, Natural Gas bulls have not seen any meaningful rally in prices the past few weeks, as moderating temperatures and record production have curtailed price volatility. Last week the Energy Information Administration (EIA) reported that Gas in storage in the U.S. rose to 3.1 trillion cubic feet (tcf), which was a 112 billion cubic foot (bcf) increase from the prior week. Weather forecasts are now calling for more "seasonal" temperatures for the rest of October, which should help to temper any major spikes in demand for heating or cooling as we head into the unofficial start of the winter Gas draw on November 1. One bright spot for bulls is the expected demand increase for Natural Gas from the chemicals industry. The EIA expects the chemical industry to increase is Natural Gas usage by 4% next year to an average of 22.1 bcf per day. In addition, there are several new chemical plants expected to come online in the next few years, which will only add to the industrial usage totals in the future.

Technical Notes

Looking at the daily chart for November Natural Gas, we notice prices trading near the lower end of the current consolidation phase that began back in July. Prices are holding just below the 20-day moving average (MA), but remain well below the long-term 200-day MA, which is currently nearly 30 cents above recent price levels. The 14-day RSI remains in neutral territory, with a current reading of 46.08. Support is seen at the July 28th low of 3.786, with resistance found at 4.204.

Mike Zarembski, Senior Commodity Analyst


October 9, 2014

Gold Got Just What the Dr Ordered

Thursday, October 9, 2014

Yesterday's FOMC minutes were exactly what Gold bulls were hoping for, which gave prices a boost. The question is whether or not the Gold market will be able to sustain the rally or if it will simply fizzle out. Yesterday's minutes show the Federal Reserve essentially completing the transition between hawkish and dovish attitudes. Two key talking points that suggest the Fed will continue to be very lax with their policy are inflation and the labor market. The talk of inflation remaining low for the foreseeable future and the mention of underutilization in the labor market both build the case to keep rates low. It was as if the central bank sought to downplay the positive job reports over recent months.

Fundamentals

The direction of the US Dollar in the near-term may either stymie a potential rebound in prices or add fuel to the fire. The greenback did not sharply fall back on the FOMC minutes, which was somewhat surprising. The minutes could be seen as Dollar negative, especially since the committee members specifically voiced their concern over a stronger greenback. The state of the European economy could prevent a large-scale sell-off in the US Dollar, as the ECB will likely be much more aggressive with its monetary policy than the Fed. The Fed, on the other hand, may simply be content with having the bond-buying program come to an end and keeping interest rates low. Aggressive action from the ECB and softer Chinese economic activity could keep the US Dollar from retracing significantly, which may limit the upside in Gold.

Technical Notes

Turning to the chart, we see the December Gold Contract bouncing back strongly after briefly trading below the 1200 level. In addition to running into technical support between 1175 and 1200, prices had been oversold, which helped spark the reversal. Prices may encounter resistance near the 1240 level. If prices are able to gain their footing above the 1240 mark, it may result in further buying interest.

Rob Kurzatkowski, Senior Commodity Analyst


October 10, 2014

"Mooving" on Up

Friday, October 10, 2014

Feeder Cattle futures are trading at record price levels, as a sharp decline in feed costs and high retail prices for beef have encouraged ranchers to increase herd sizes. However, it takes between 1 and 2 years to get Cattle to market-ready weights, and the current supply of young Cattle remains very tight. These factors have the potential to keep the bull market for Feeder Cattle in place going into 2015.

Fundamentals

No pun intended, but the "bull" market for Live Cattle futures remains intact, as new all-time highs have been made this week. Higher prices being paid for wholesale beef are expected to allow meatpackers to become more aggressive in their pricing in order to secure market-ready Cattle to meet retail beef demands. Cash market traders note fewer Cattle being marketed for sale this week, with owners looking for higher prices as supplies continue to be tight. There is real fear by traders that cash Cattle prices will continue to rise faster than wholesale beef prices, which would greatly diminish the enthusiasm for beef processors to aggressively bid for Cattle as profit margins get squeezed. However, the recent jump in wholesale beef prices this week may put some of those fears to rest for the time being. Seasonal tendencies are for Cattle futures prices to rise going into the winter month contracts, as winter weather can slow cash market sales. The real question becomes will retail consumers be willing to pay even higher prices for beef at the grocery store, or will we see a significant shift in retail demand to other protein sources, which could trigger an abrupt end to this historic market run.

Technical Notes

Looking at the daily chart for February Live Cattle, we notice prices ebbing upward, as recent market moves have been a series of price consolidations followed by short price bursts higher. This movement in prices may actually be adding stability to the uptrend, as opposed to a more vertical "parabolic" price move. The 20-day moving average has acted as support for a majority of the bullish price trend, so this key indicator should be watched for any signs of a possible price correction. The 14-day RSI has moved into overbought territory, with a current reading of 75.23. 170.000 is now seen as the next psychological resistance level for February Live Cattle, with support found at 158.400.

Mike Zarembski, Senior Commodity Analyst


October 13, 2014

Will the "Trend be Your Friend" when You Trade the Yen?

Monday, October 13, 2014

The Japanese Yen is a bit of an enigma among the major global currencies, as it is at times viewed as a "safe haven" asset during bouts of economic turmoil. This belief is held despite the nation's massive government debt, aging population, and little to no economic growth. While most of Japan's debt is held domestically, it's questionable whether the nation's declining population will be able to support the massive amounts of government borrowing in the coming years. Will the Bank of Japan be forced to keep the value of the Yen weak in order to support the nation's manufacturing exporters in hopes of returning the nation's balance of trade back to a surplus, where it was for the 40 years prior to 2011?

Fundamentals

While the attention span of many traders can be measured in minutes and "long term" trades can last for weeks, it may behoove those who follow financial markets to look at the "big picture" and study longer-term trends. A classic example is in the value of the U.S. Dollar vs. the Japanese Yen (USD/JPY). While the Japanese Yen appears weak vs. the U.S. Dollar at a current value near 108 Yen per Dollar, those who have studied the history of this currency cross know we could still have a way to go. If we look back to the early 1970's, it took closer to 360 Yen to equal 1 U.S. Dollar! In fact, even as late as the late 1990's the USD/JPY was trading closer to 145. As we enter the 4th quarter of 2014, it is notable how different the monetary policies are between the Bank of Japan (BOJ) and the Federal Reserve (Fed). Three decades of deflation and aging demographics are forcing the BOJ to promote aggressive accommodative monetary policies. At the same time, traders expect the Fed to start to pull back from its monetary stimulus, with markets pricing in a possible interest rate hike by mid-2015. While some Japanese lawmakers are concerned that the weakening Yen is hurting non-exporting companies, BOJ Governor Haruhiko Kuroda told members of the Japanese parliament that a weaker Yen would help the country's exporters and benefit the Japanese economy overall. Given that the BOJ has already committed to asset purchases of nearly 70 trillion Yen per year and economic growth remains stagnant, it may take "extraordinary" measures by the BOJ to help jumpstart the Japanese economy, which may include measures that may further weaken the value of the Yen -- possibly to levels not seen in several decades. While it may still be too early to definitely prove, we could be in the process of seeing the end of the historic bull trend for the Japanese Yen.

Technical Notes

Looking at the weekly continuation chart for the Japanese Yen futures, we note that the trendline drawn from the 1985 lows has failed to hold the recent sell-off. While it appears that prices may have become oversold in the near-term, the longer-term trend now seems to favor Yen bears. The next major support level is not seen until the 0.8150 area, with resistance found near 0.9950.

Mike Zarembski, Senior Commodity Analyst

October 14, 2014

Heavy Rains Enough To Spark Corn?

Tuesday, October 14, 2014

Corn futures are trying to claw their way back from lower $3 levels, boosted by soggy conditions. The colder, wet weather could delay the Corn harvest, opening to door to some spoilage. Traders, however, must question whether the temporary weather conditions can make a lasting impact on prices.

Fundamentals

Friday's USDA data could be seen as bullish for Corn and Wheat, while the Soybean outlook was seen as neutral. The government agency estimated that Corn yields will be 174.2 bushels per acre, falling short of the market consensus. This number is up 2.5 bushels per acre from the September report, but traders were looking for a half a bushel per acre more. This number feels a bit conservative, given the fantastic growing conditions this year, and it would not be surprising to see this revised up closer to the 177 to 178 level at some point. Total production is expected to be 14.475 billion bushels versus the analyst estimate of 14.500 billion bushels. Traders may want to monitor the weather in the near-term, as thunderstorms across the southern and eastern parts of the Corn Belt could delay harvest.

Technical Notes

Turning to the chart, we see the December Corn contract forming what could turn out to be a near-term bottom at the beginning of the month. Prices have rallied since that point but have been reluctant to break through the 350 level. The 50 day moving average comes in just below 350 and may also provide resistance. If prices are able to break through 350, the move above the 50 day moving average could provide an additional spark.

Rob Kurzatkowski, Senior Commodity Analyst


October 15, 2014

Wet Weather Stalls Soybean Harvest

Wednesday, October 15, 2014

The following are the highlights from last week's USDA crop production and supply/demand report:

Corn: Production 14,523 billion bu. vs. 14,395 billion bu. last month
Ave. Yield: 174.7 bu. per acre vs. 171.7 bu. per acre last month
2014-15 Stocks: 2.114 billion bu. vs. 2.002 billion bu. last month

Soybeans: Production 3.927 billion bu. vs. 3.913 billion bu. last month
Ave. Yield: 47.6 bu. per acre vs. 46.6 bu. per acre last month
2014-15 Stocks: 478 million bu. vs. 475 million bu. last month

Fundamentals

Soybean futures got a much needed lift as heavy rainfall has moved over much of the central portions of the U.S. Wet weather will keep producers out of the fields, further slowing this season's harvest. How long the price recovery will last remains to be seen, but the overall fundaments continue to favor bean bears. For Soybeans, we saw the USDA raising U.S. production totals to 3.927 billion bushels in its October crop production report, up only slightly from the previous month, but 17% higher than last year. While the estimate for harvested acreage slipped, this was more than made up by a rise in the average yield by 1 bushel per acre to 47.6 bushels per acre. U.S. Soybean stockpiles are expected to swell for the 2014-15 marketing season to 478 million bushels vs. 130 million bushels this season. With global Soybean inventories expected to be at record levels, lower prices may be needed to spur U.S. exports or unfavorable weather in Brazil and Argentina as the Soybean planting season begins in earnest.

Technical Notes

Looking at the daily chart for November Soybeans, we notice prices attempting to form a bottom as psychological support at 900.00 continues to hold. The recent rally has taken the market above the 20-day moving average and trading volume has been in the upper end of the recent range. The 14-day RSI has rebounded from oversold levels to a more neutral reading of 50.64. The low of 904.00 made back on October 1 looks to be support for the November futures, with resistance seen at the September 16 high of 999.75.

Mike Zarembski, Senior Commodity Analyst


October 16, 2014

Treasury Yields Drop on Equity Panic

Thursday, October 16, 2014

The Treasury markets got a huge boost from disappointing economic data from Europe and the US, along with weaker equity prices on the data. Equities got absolutely pummeled early in yesterday's session, before paring losses going into the closing bell. Traders are concerned that the slowness in Europe and Asia could hamper growth in the world's largest economy. Traders have been encouraged by recent economic data, including the lowest jobless rate in 6 years. Recession is not the main concern, but rather, traders are concerned that the rest of the globe could make the economy fall short of its potential. Certainly, the Ebola virus fears played a small, but not insignificant, part in yesterday's weakness and will continue to be on the minds of traders for some time, given the 15-20 day gestation period for the illness. A larger scale outbreak in the US could have crippling short-term effects on the economy.

Fundamentals

Bond traders have drastically changed their rate outlook over the course of the past 2 weeks plus. On September 30, Fed Fund futures were pricing in a 78% chance of a Fed rate hike by September 2015. That has dropped to less than half of that, estimates the futures are now only pricing in a 36% chance of a rate increase over the same time frame. The yield on the 10-Year Note fell to 1.86% during yesterday's trading session. Yields on Notes have fallen sharply over the past 8 days, suggesting maybe yields may have fallen too sharply, too quickly. The yield on 10-Year Notes closed the session at 2.08%, the lowest level since May 2013. This can be seen as overdone given the improved state of the US economy now.

Technical Notes

Tuning to the chart, we see the December 10-Year Note contract breaking through continuous chart resistance near the 126-15 level. Prices have flirted with weekly resistance at the 130-07 level before falling back. The 14-day RSI is now over 90, which can be seen as extremely overbought. The 10-Year is now also trading above the 100-week moving average.

Rob Kurzatkowski, Senior Commodity Analyst


October 17, 2014

Volatility has returned with a Vengeance

Friday, October 17, 2014

Looking over the price movements in several of the major futures markets this week, I noticed that price movement was, in most cases, contrary to the positions being held by large speculators, For example, we saw a significant rally in the Euro FX futures this past week which was a market that had a significant net-short position being held by non-commercial traders. Not many traders would consider buying the Euro as a "safe haven" trade, which leads one to believe that much of the recent price movement was due to position liquidation. The U.S. Treasury market saw record volume on Wednesday with a "spike" in prices and huge volatility across the yield curve as large short positions were forced to cover.

Fundamentals

Many experienced traders knew the low volatility levels seen in the equity and bond markets could not last forever, but it appears that few were prepared for the sharp rise in volatility seen since the start of the 4th quarter. The CBOE Volatility index which was trading just above 11.00 as late as the end of August, surged to over 28.00 on October 15th as the S&P 500 index gave back all of its gains for 2014 and 10-Year Treasury Note yields fell below 2% for the first time in 16 months as market participants have suddenly began to focus on signs slowing global economic growth, especially in Europe as well as geopolitical turmoil in Iraq, Hong Kong and Ukraine. Ironically, even sharply lower Crude Oil prices are sparking concerns despite the perceived benefits of lower energy and gasoline prices on consumers and businesses. Here, the concerns are that the continued trend in subdued inflation readings, with the additional input of lower energy prices, may keep Federal Reserve officials in a "dovish" mindset, potentially spilling over into a much later date for the first hike in U.S. short-term interest rates since the summer of 2006. Another factor that could be sparking concerns for equity traders is the effects of lower Crude prices on more marginal shale drillers in the U.S. Should Oil prices remain below the cost of production for a prolonged period time; we may see the curtailment of the rapid growth of U.S. energy production, which would be bad news for those states currently experiencing an economic and employment boom due to energy drilling. Even beleaguered Greece is back in the news as the nations bond yields have spiked higher to levels not seen in over 8 months on concerns that a plan by government officials to exit its bailout earlier than expected may cause the nation to be unable to raise sufficient funds in the government debt market at current yields. While October has been "infamous" for previous major equity market sell-offs, most notably October 24, 1929 and October 19, 1987, It would not be unusual for October's "trick" to end, ultimately, as a "treat" for long term stock market bulls.

Technical Notes

To try to filter out some of the "noise" seen on the daily charts, we will look today at the weekly continuation chart for the E-mini S&P 500 futures. Here we notice that if one were to draw trend lines from the major lows beginning with the historic "bottom" made back in 2009, only the line drawn from the November 2012 low has been taken out so far. The next major trend-line drawn from the October 2011 low has not yet been reached. This line is currently near the 1800.00 level for the front month futures. For long-term traders, the most important trend-line is drawn from the March 2009 low and this trend line does not come into play until the 1525.00 price level, which ironically is also where the 200-week moving average currently resides. The 14-week RSI has turned weak, but has not yet reached oversold levels with a current reading of 36.82. The next weekly support is seen at 1803.25, with resistance found at 1890.25.

Mike Zarembski, Senior Commodity Analyst


October 20, 2014

Not so "Golden" Anymore"

Monday, October 20, 2014

For those traders who really take a long view of market trends, looking at the monthly continuation chart for Gold futures, we notice that the bull market that began back in 2001 when Gold prices were just above $250 per ounce and cumulated in a rally to all time highs above $1900.00, has only retraced about 43% of the up move. It does remain a possibility that if front month Gold prices hold above the 50% retracement level of 1085.00, the long-term uptrend may actually be in a consolidation phase prior to another move upward for prices. It would take a monthly close below $1000 to increase the odds that the bull move has ended with little in the way of support for Gold prices until around the $700 level.

Fundamentals

"When the goings' gets tough, the tough turn to Gold?" That may have been a true statement in the recent past as traders and investors would turn to Gold investments during times of economic uncertainty. However, recent geopolitical events, as well as a equity market pull-back, caused barely a upward blip in Gold prices. While Gold prices have rallied nearly $50 per ounce since recent lows were made last week at prices below $1,200 per ounce, one would have though prices would have been even higher considering a nearly 10% stock market correction in the U.S., European economic concerns, and military conflicts in Iraq and Syria. One reason given for Gold's rather lackluster performance is the recovery in the value of the U.S. Dollar (USD). Since May of this year, the Dollar has gained nearly 12% vs. the Euro and 10% vs. the Japanese Yen. A stronger Dollar is considered bearish for commodities priced in USD, as it makes them more expensive for non-dollar buyers. Gold bulls will argue that concerns that the global economic recovery has stalled, particularly in Europe, will force the Federal Reserve, as well as Central Banks throughout Europe and Asia to maintain very accommodative monetary policies for longer than expected, which would generally be a bullish factor towards commodity prices including Gold. Market participants have now pushed back the starting date of a U.S. interest rate hike well into 2015, as the Fed Funds futures contract is now pricing a 78% chance that the target rate will be 0.25 or lower at the end of the July Fed meeting vs. a 26% chance just one month ago. While investor interest in Gold has improved based on the nearly 1.8 ton increase in gold holdings in a leading Gold ETF last week, the fact that Gold prices only saw a modest increase despite the wild price swings in equity markets, may signal that the recent rally was nothing more than a market correction in the current bearish trend that began once prices reached all time highs back in August 2011.

Technical Notes

Looking at the weekly continuation chart for Gold futures, we notice the formation of a descending triangle pattern. This technical formation tends to signal that bullish demand is weakening as a pattern of lower highs shows that selling is emerging at lower price levels. A break below support seen at the horizontal side of the pattern could spark an increase in downward momentum should weak longs exit the market. Despite the recent rally, prices remain below the 20-week moving average (MA) and over $250 below the long-term 200-week MA. The 14-week RSI, while rebounding, still remains neutral to weak with a current reading of 42.10. The 1181.40 remains as support for front month Gold futures, with resistance seen at 1346.80.

Mike Zarembski, Senior Commodity Analyst


October 21, 2014

China Beats GDP, but Oil Glut May Temper Bulls

Tuesday, October 21, 2014

The Crude Oil market got a boost in early trading after China reported better than expected GDP numbers. Chinese GDP grew at a 7.3% pace in the third quarter versus a consensus estimate of 7.2%. Also, Chinese demand for Crude Oil rose by 7.1% in September, which is more than double the growth rate of August. These can be seen as positive factors for Oil in the near term given how big of a question mark Chinese growth and consumption have been to this point. Traders, however are taking the GDP data in stride. There is more relief that the figure did not disappoint rather than enthusiasm with the results.

Fundamentals

This week's EIA inventory report could rain on Oil traders' parade, as stocks are expected to have risen by 3 million barrels last week. To this point US demand has been lackluster at best while production continues to climb. US Crude Oil production is around 8.95 million barrels a day, which is the most the country has produced in more than 29 years. OPEC is expected to have boosted their collective output by 1.4 % in month of September. Cartel members have lowered their selling prices and are seen as competing for market share, rather than trimming production in hopes of boosting prices. This could exacerbate the glut in supplies and overshadow positive news from China and the US.

Technical Notes

Turning to the chart, we see the December Crude Oil contract holding above the $80 level. To this point, the contract has held up at this technical support level. More stout support can be found around the $75 mark, should Oil fail to hold $80. The result of recent price weakness has been oversold technical levels. The 14-day RSI is in the mid-teens, which could be supportive of prices in the near term. In order to gain some traction, Crude Oil prices may need to post several closes north of the $85 mark.

Rob Kurzatkowski, Senior Commodity Analyst

October 22, 2014

Sugar: A Bull Market or Bull Trap?

Wednesday, October 22, 2014

Large and small traders have a mixed opinion on the direction for Sugar prices, although neither side is placing much stock in their opinions. The most recent Commitment of Traders report shows non-commercial traders holding a relatively small net-long position of 12,372 contracts as of October 14th. For comparison, during the last bull market in Sugar, these large speculators would hold net-long positions of over 200,000 contracts! Non-reportable traders, which are normally made up of small speculative accounts, are holding a net-short position of 8,769 contracts. Commercial traders are modesty net-short in Sugar futures, but have been slowly reducing the size of their position of late.

Fundamentals

The recent bearish trend for Sugar prices appears to have stalled, as prices have consolidated well off recent lows. There are concerns among analysts that the global Sugar surplus will decline sharply or may even fall to a supply deficit in the upcoming season. This has trend following traders covering short positions that were established during the past several years of a supply glut. Lower Sugar production totals are expected out of India and Thailand next year, and dry conditions in Brazil earlier this year may reduce the output for the 2015-16 Sugar Cane crop. While the longer-term outlook for Sugar prices appears to favor the bulls, any near-term rallies may face some headwinds from lower Crude Oil prices. This may encourage Brazilian producers to steer additional Cane production towards food usage as opposed to fuel. Additionally, a weakening Brazilian currency encourages producers to sell their Sugar in the export market, as they will receive more reals when converting foreign currency received from their overseas sales.

Technical Notes

Looking at the daily chart for March Sugar, we notice the downtrend line drawn from the late June highs has been taken out following the upside price "gap" made on October 6th. Prices are now trading above the 20-day moving average, and the 14-day RSI has moved into neutral territory, with a current reading of 44.74. While we see the start of an uptrend being formed since recent lows were made back in late September, it is notable that trading volume has been declining as prices move higher. This could be a sign that the recent rally was primarily attributable to short-covering buying and not the establishment of new long positions. Near-term resistance is seen at the October 9th high of 17.20, with near-term support found at the October 16th low of 16.28.

Mike Zarembski, Senior Commodity Analyst


October 23, 2014

Treading Water

Thursday, October 23, 2014

The Copper market has had a choppy few weeks of trading due to turbulent stock market activity and uncertainty in the Chinese economy. The extreme volatility in equities shook some longs out of the commodity markets. While stocks have recovered from the price shock, traders who had previously been long metals and energies have been reluctant to return to the market to this point. The result has been erratic trading activity.

Fundamentals

Chinese manufacturing has shown signs of life, posting a 50.4 reading on HSBC's manufacturing gauge. The market was expecting a 50.2 reading. While this is certainly a positive development, many Copper traders are trying not to read too far into the report. There are still genuine demand concerns for base metals from China. Many observers who closely monitor the Chinese economy believe that the economy there can still benefit from more central bank intervention and an injection of liquidity. Europe also received a bit of positive economic news, as a Purchasing Managers Index for the manufacturing industry in the euro area rose to 50.7 in October from 50.3 in September. Some estimates for the index were sub-50, which would signal a contraction. The US Dollar Index has also rebounded in recent sessions, which has held back metal prices. If the index breaks 85.00 on the downside with any vigor, Copper prices could benefit greatly from the breakdown.

Technically Notes

Turning to the chart, we see the December Copper contract centering around the $3 level. Initial breaches of the 3.000 mark have resulted in prices rebounding the following session, suggesting strength near the mark. Failure to hold 3.000, especially if prices break 2.9500, could be seen as fairly bearish for Copper. If Copper does manage to hold above 3.000, the market could see sideways trading for some time.

Rob Kurzatkowski, Senior Commodity Analyst


October 24, 2014

Coffee Prices Cool but Bullish Fundamentals Continue to Percolate

Friday, October 24, 2014

A large long position being held by speculators may contribute to further price weakness in the short-term as weak longs are forced out of the market as prices move lower. The Commitment of Traders (COT) report has the combined non-commercial and non-reportable net-long position totaling over 54,000 contracts as of October 14th. How much this net-long position declined during this week's sell-off will be reflected in this afternoon's COT report. Long-term traders may utilize recent price weakness to establish new long positions in 2015 Coffee futures, as there remains continued uncertainty as to how the Arabica trees fared following this season's devastating drought.

Fundamentals

Coffee bulls cup of java appears to have turned cold as the upward momentum has stalled as prices approached multi-year highs. Analysts attribute weather forecasts calling for much needed rains to reach the Brazilian Coffee growing regions in the coming days as a catalyst for profit-taking selling, as prices reached the $2.25 per pound level. This needed moisture has relieved some of the fears of repeat of drought conditions that plagued this past season's Coffee crop, causing production to fall to 3 year lows. The concerns for the 2015-16 season's production were heightened as it is the "off-year" for the 2 year Arabica Coffee production cycle, which normally sees lower production totals. While timely rainfall will help with next season's production, there remains some concerns that this past seasons drought has delayed the flowering stage and with the trees already in a compromised state, even subdued production estimates might be difficult to reach. If true, Coffee bulls may once again see a "jolt" in prices as we move into the South American summer.

Technical Notes

Looking at the daily chart for December Coffee, we notice prices are now in a "correction" phase as Coffee bulls failed to propel prices above resistance near the 225.00 price area. Monday's chart "gap" lower opening took prices below the 20-day moving average (MA), which added further selling pressure from short-term momentum traders. The 200-day MA has not been tested since February of this year and might end up as the next support target for Coffee bears. Chart support is seen at 176.40, with resistance found at 208.50.

Mike Zarembski, Senior Commodity Analyst


October 27, 2014

Cotton Bears Take a Breather as Prices Consolidate Above Lows

Monday, October 27, 2014

The October USDA crop production report forecasted U.S. Cotton production at 16.3 million bales, which was down 2% from last month's estimate, but still over 26% last year's total. The International Cotton Advisory Committee lowered its forecast for global Cotton prices to 6 year lows, as an expected 1.8 million metric ton global production surplus and huge Chinese Cotton inventories are expected to suppress Cotton prices as we move into 2015.

Fundamentals

The bear market for Cotton prices has stalled of late and the market has moved into a consolidation phase. Lead month December Cotton has held above the 60 cent per pound level, despite bearish demand fundamentals out of China and favorable harvest weather in the U.S. 29% of the U.S. Cotton crop has been harvested so far, which is slightly below the 10-year average of close to 35% completed. However, weather forecasts are calling for nearly ideal weather conditions in the heart of the "Cotton belt" for the last part of October which should allow producers to get back into the fields. Weaker Chinese Cotton demand, combined with a strengthening U.S. Dollar could greatly curtail U.S. Cotton exports in 2015 with an announcement earlier this month that China would restrict Cotton import totals adding to the bearish Cotton fundamentals as China is both the largest exporter and consumer of Cotton globally.

Technical Notes

Looking at the daily chart for December Cotton, we notice prices trying to from a base as prices have been in a consolidation phase since August. The market has traded on both sides of the 20-day moving average (MA) of late but remains over 10 cents per pound below the longer-term 200-day MA. The 14-day RSI has moved off of oversold levels with a current reading of 44.69. The recent low at 60.83 remains support for the December contract, with resistance seen at 68.48.

Mike Zarembski, Senior Commodity Analyst

October 28, 2014

Sound as a Pound?

Tuesday, October 28, 2014

The British Pound has suffered heavy losses since July, but prices seemed to have been stabilizing in recent sessions. Traders have viewed the decline in exchange rate as excessive, which has squeezed some shorts out of the market. The UK has suffered some of the same issues that the EU has, but growth continues to outpace that of continental Europe. Technically, the chart is showing signs that the Pound could be bottoming in the near-term and may be set to rebound in coming sessions.

Fundamentals

Economic growth in the UK did slide back a bit this quarter, with the quarterly GDP slowing from 0.9% to 0.7% in Q3. However, GDP is on pace to grow at a rate of 3.0%, year over year, which is still a very respectable number and better than the Eurozone. For this reason, the Bank of England could be a bit more conservative in its policy compared to the ECB. The slowing pace of growth, however, is disappointing but not surprising. Recent economic indicators have been pointing a bit downward and UK workers' wages have been on the decline. The wage decline is one of the largest threats to the recovery going forward and should be monitored just as closely as the unemployment rate, if not more so.

Technical Notes

Turning to the chart, we see the December British Pound appearing to form an inverted head and shoulders pattern. If the pattern is confirmed, the Pound may test the 1.6500 level. The close above the 20-day moving average suggests that a near-term low may be in place. The recent activity has resulted in the RSI recovering to neutral territory from oversold levels.

Rob Kurzatkowski, Senior Commodity Analyst

October 29, 2014

Copper Rallies as Potential Mining Strikes Loom

Wednesday, October 29, 2014

Speculators have remained short the Copper market but may be in the process of curtailing their net-short positions. The most recent Commitment of Traders report shows that the combined net-short position of non-commercial and non-reportable trader's totals over 37,000 contracts, which is rather sizable for this market. Commercial traders on the other hand have been adding to their net-long positions of late as end-users appear willing buyers at current price levels.

Fundamentals

Copper prices have rebounded off of 7-month lows as traders cover short-positions on fears of potential mine strikes in Peru and Indonesia. If both strikes take place, it would shut production at two of the world's largest Copper mines responsible for nearly 70,000 metric tons of production per month, which would severely tighten the global supply of Copper concentrate. Copper prices have received an additional boost of late, as traders are starting to expect additional stimulus measures from many major global Central Banks and especially from the Peoples Bank of China (PBOC). China is the leading consumer of Copper, so any signs that Chinese government officials are implementing polices to improve domestic investment is deemed bullish for the red metal. Going forward, the next move for Copper prices may be influenced by the direction of the U.S. Dollar (USD). Recent Dollar strength has stalled somewhat, which has added some support to commodity prices. A stronger USD is normally deemed a bearish factor for commodities priced in USD as it makes the commodity more expensive for non-U.S. buyers.

Technical Notes

Looking at the daily chart for December Copper, we notice the market forming what appears to be a "V' shaped bottom formation. Prices have moved above the 20-day moving average and the 14-day RSI has started to strengthen, with a current reading of 56.49. One negative item to the sustainability of the recent price rally is that it is occurring on slightly lower trading volume. This could be a sign that short-covering is behind the move with new longs not yet being established in the market. 3.1090 is seen as the next major resistance level for December Copper, with support found at 2.9515.

Mike Zarembski, Senior Commodity Analyst


October 30, 2014

"Sufficient Underlying Strength"

Thursday. October 30, 2014

The Federal Reserve finally brought an end to their asset purchase program, which had a negative impact on Oil prices. The move surprised no one, as this was the central bank's target sunset period for the program. Despite the bank telegraphing the move, commodity traders, as a whole, reacted negatively to the reduction of money supply. The Fed did reiterate that it intends to keep interest rates low for an "extended period," but this did little to soothe traders. Instead, the quote from the FOMC that really irked traders was "The Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability." To many, this means the Fed may be reluctant to add liquidity in the interim unless absolutely necessary.

Fundamentals

The policy statement from the FOMC was not the only news negatively impacting the Crude Oil market. US production increased to 8.97 million barrels a day, the most since January 1983. The market is already more than adequately supplied, so the news of higher production was greeted with selling. The EIA reported Crude Oil inventories rose by 1.06 million barrels last week, bringing the US supply to 379.7 million barrels. Cushing, Oklahoma inventories increased by 776,000 barrels to 21.4 million barrels. This is the highest stocks have been at the NYMEX delivery point since June. More importantly, this could be viewed as a sign that glut could be getting worse, as there have been no supply line disruptions between Cushing and refineries on the Gulf of Mexico. Despite the supply glut, OPEC has been incredibly measured in its response to the glut. Leading members of the cartel has resisted the urge to call for supply cuts to bolster prices. The group's Secretary-General Abdalla El-Bardi said the collective output will remain close to this year's level of 30 million barrels a day, citing OPEC's expectation that supply and demand will return to equilibrium. The next meeting for OPEC is scheduled to take place November 27th in Vienna.

Technically Notes

Turning to the chart, we see the December Crude Oil contract continuing to consolidate just north of the $80 level. Given the preceding move lower, the bias may favor the bear camp in the near-term. The $80 mark, while important, is not as significant as support near the $75 and $70 levels. Crude Oil is in a technical bear market, which may continue to have a negative influence on prices. The RSI indicator did barely bounce back from oversold territory due to yesterday's price action. Momentum remains negative and we are seeing slight bearish divergence between this indicator and the RSI.

Rob Kurzatkowski, Senior Commodity Analyst


October 31, 2014

Is Recent Gas Price Rally a "Trick" or "Treat" for Bulls?

Friday, October 31, 2014

U.S. Gas storage levels rose by a larger than expected 87 billion cubic feet (bcf) last week, bringing the total amount of Gas in storage to 3.480 trillion cubic feet (tcf). While current inventories are just over 8% below the 5-year average for this time of year, current inventories should be sufficient to allow for adequate supplies to make it through the winter heating season.

Fundamentals

Cold and windy weather moving over the Midwest is bad news for Trick or Treaters this Halloween, but is good news for Natural Gas bulls, as front month futures have rebounded off 1-year lows. A short-term cold front has moved through the northern plains and is expected to move south as we go through the weekend. Expected highs range from the upper 30's to the 40's for most of the central portions of the U.S. November 1st is considered the start of the Natural Gas "draw," as supplies in storage are used to meet heating needs as winter approaches. While heating demand is expected to increase in the coming days due to the recent cold-snap, longer-term forecasts are calling for a 70% to 80% probability of above-normal temperatures for most of the midsection of the U.S.-- which if accurate and along with record Gas production from shale formations, could allow Gas to continue to move into storage throughout November.

Technical Notes

Looking at the daily chart for December Natural Gas, we notice a "V" bottom forming, with prices attempting to test resistance at both the 20-day moving average and the lower band of the previous consolidation pattern. The 14-day RSI has moved from near-oversold levels to a more neutral reading of 46.24. 3.861 looks to be the next near-term resistance level, with support seen at the recent low of 3.620.
Mike Zarembski, Senior Commodity Analyst