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October 2016 Archives

October 3, 2016

Are Stock Index Traders getting "Spooked" by Bank Stocks?

Monday, October 3, 2016

The first part of October will have plenty of data for traders to ponder including the always anticipated Non-farm Payrolls report due out Friday. In addition this week will see the release of the ISM manufacturing and non-manufacturing index, construction spending, jobless claims as well as the ADP private sector employment report. The following week is the unofficial start to the earnings season when Alcoa reports its quarterly earnings on October 10.

Fundamentals

Well October is here which for kids usually means Halloween "Treats" are in store the end of the month, but for equity traders, October tends to produce more "Tricks" with an occasional rock being tossed in the Halloween "Stock Basket". Just look at what occurred just this past Thursday, when mid-day the S&P 500 futures fall by nearly 20 full points in 30 minutes time during what was a rather slow trading session on renewed concerns about bank stocks and in particular concerns surrounding Deutsche Bank after the U.S. Justice Department imposed a $14 billion fine as a settlement against improper selling of mortgage back securities. While the bank is prepared to challenge the settlement amount, additional pressure is seen from within Germany where even idea of a government bank bailout is unpopular but even more so during an election cycle that is occurring. Equity indices have been very choppy the past two weeks with news of an "agreement" by OPEC members of a production cut rallying energy stocks and major indices only to see the gains erode the following session on bank stock concerns. The cash volatility index or VIX has also seen increased volatility since September following a summer long period of relative tranquility in the equity markets. Looking forward, we still have the U.S. elections in November and 2 more Federal Open Market Committee meetings scheduled with the prospect of an interest rate hike still up in the air. With corporations about to report quarterly earnings as well, traders will have plenty of data to ponder which could create plenty of market movement across sectors and provide potential trading opportunities this fall.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice the rather dramatic in daily price trading ranges the past few weeks as daily market volatility has increased while the overall market remains range bound. Prices have been hovering near the 20-day moving average the past few sessions but are still in a longer term uptrend. Momentum as measured by the 14-day RSI is also confirming the consolidation pattern with a neutral reading of 53.39. The September 12 low of 2100.25 looks to be the next major support level for the lead month December futures, with resistance found at the September 22 high of 2172.75.

Michael Zarembski, Senior Commodity Analyst

October 4, 2016

Let's Relive 1985!

Tuesday, October 4, 2016

The UK Pound Sterling is trading at its lowest level since 1985. However, the FTSE 100 Index is now trading at a record high. How to explain this disparity: The FTSE 100 is heavily composed of international firms and their earnings outside the UK are worth more as the Pound continues to fall.

Fundamentals

The political shakeup in the UK has stabilized. Jeremy Corbyn was resoundingly reelected as the leader of the opposition Labour Party. Prime Minister Theresa May and her cabinet have put forth their preliminary approach to negotiations about leaving the European Union. In particular, at the Conservative Party Conference, the Prime Minister announced that the UK would trigger article by March of 2017. In addition, the Conservative Party seems to be leaning towards a 'hard Brexit' in which the UK would not accept free movement of people which is the current policy in the European Single Market. The International Monetary Fund did upgrade the UK's growth forecast to 1.8% for 2016. However, the IMF sharply downgraded the UK growth forecast for 2017 down to 1.1%.

Technical Notes

Turning to the three month continuation chart for the British Pound, we see continued bearish signs. The chart is showing a pattern of lower highs and lower lows. The 20 day Simple Moving Average recently crossed below the 50 day Simple Moving Average. 14 day Relative Strength Index is a bearish 33.15

Dale Jennings, Commodity Analyst


October 5, 2016

Will October USDA Report End Cotton's Upward Price Move?

Wednesday, October 5, 2016

The Cotton futures market has a 2-way tug-of-war going on with large speculative accounts on the bullish side and Commercial Hedgers selling into the rally. The most recent Commitment of Trader's report shows non-commercial traders added nearly 8,000 new net-long positions during the reporting period ending September 27. This raised their overall net-long position to just over 96,600 contracts. Commercials on the other hand increased their net-short position by just over 7,600 contracts to a net-short position of nearly 105,400 contracts. Small speculators have been rather quiet in the market, shedding almost 200 net-long positions during the reporting period which reduced their overall net-long position to just over 8,750 contracts.

Fundamentals

Rather quietly, Cotton futures have been in an upward price trend for most of 2016, with new-crop December futures gaining nearly 15-cents from the market's late February low. Concerns that once burdensome supplies of Cotton were finally being drawn down appear to be the main catalyst in the price recovery, triggering a bout of Commodity Fund short-covering which then evolved into fresh buying by momentum based traders. Add into that scenario some weather risk premiums over the summer for the U.S. crop and you have all the pieces in place for the rally. However, as fall has arrived and we start to focus on the U.S. harvest, some analysts believe that harvest forecasts might be revised higher due to improving weather conditions the past few weeks. U.S. Cotton ending stocks for 2016 are expected to increase to over 5 million bales, vs. 3.8 million bales in 2015, assuming we do see the USDA revise yields upward. Any continuation of the uptrend may hinge on how U.S. Cotton exports fare heading into 2017 -- but especially U.S. exports to China, which is the world's largest consumer of the fiber. Here the outlook is still cloudy concerning how China's Cotton sales from state owned reserves will affect its import totals next year. Should Chinese buying start to diminish, it could signal the end to the recent up-move for Cotton prices as we approach the New Year.

Technical Notes

Looking at the daily chart for December Cotton, we notice prices appear to have entered a consolidation phase after a minor price correction from the 2016 highs that were made back in early August. While the longer-term trend still favors the bullish camp as evidenced by prices holding above the 200-day moving average, near-term we are seeing more two-sided trades, with prices trading within a 600-point price band since the beginning of September. Some chart technicians may argue that the market may be forming a rather large bull-flag on the daily chart, but we would need to see an upside breakout above the most recent minor high of 72.36 made on September 22, and ideally on higher than average trading volume, to confirm this bullish technical formation. Momentum as measured by the 14-day RSI remains in neutral territory, with a current reading of 53.04. While the aforementioned September 22 high of 72.36 looks to be chart resistance, we find chart support at the August 31 low of 65.41.

Michael Zarembski, Senior Commodity Analyst

October 6, 2016

All Eyes on Non-Farm Payrolls

Thursday, October 6, 2016

With less than five weeks until the general election in the United States, many traders will be keenly watching the non-farm payroll employment report for September which will be released tomorrow at 8:30 AM Eastern Time. Initial jobless claims came in lower than expected, 249,000 versus the anticipated 256,000. This is an extremely low level, indicating a very low level of layoffs.

Fundamentals

ADP payroll numbers for September were released yesterday, coming in lower than expected, with 154,000 jobs added versus expectations of 166,000. However, many observers are pointing to a tightening US job market as the reason for the lower number. 169,000 jobs added is the forecast for September non-farm payrolls, and the unemployment rate is expected to remain at 4.9%. A strong employment number likely will increase the chance of a December interest rate increase. Fed Funds futures are currently pointing to a 55% probability of a rate hike. The recent increase in crude oil prices may add inflationary pressures in addition to rising wages from a tighter labor market.

Technical Notes

Turning to the three-month continuation chart of the E-mini S&P 500 futures, we see trading channeling between the 20- and 50-day simple moving averages (SMA), with the 20-day SMA providing support and the 50-day SMA providing resistance. Trading is still above the longer-term support level of 2100, with the 2185 level the longer-term resistance. 14-day relative strength index is a neutral 48.16

Dale Jennings, Commodity Analyst

October 7, 2016

Pork Feast for Bearish Hog Traders

Friday, October 7, 2016

Commercials and small speculative traders have been in control of the Lean Hog futures market for some time and are now starting to cover short positions as we move to multi-year lows. The most recent Commitment of Traders report shows commercial traders reduced their net-short positions by nearly 2,000 contracts during the reporting period ending September 27. This reduced the overall net-short position to just under 18,500 contracts. Non-reportable traders, primarily small speculative accounts, were also reducing their short positions but by a more modest 383 contracts to bring this group's overall net-short position to just under 17,200 contracts. Non-commercial traders have been on the wrong side of the price trend, with some long-liquidation selling beginning to emerge, with the overall net-long position being trimmed by nearly 2,400 contracts during the reporting period. This brings the category total to a net-long 35,660 contracts.

Fundamentals

For the savvy grocery shopper, now may be a good time to consider stocking the freezer with pork products, as Hog futures prices continue to tumble sending wholesale pork prices sharply lower in the process. Livestock traders received some additional bearish news from the USDA this past Friday during the release of the quarterly Hogs and Pigs Report. The USDA reported that as of September 1, the U.S. Hog herd totaled 70.851 million, which is a record amount since the USDA started tracking this date nearly 30 years ago. On top of a larger supply of Hogs, average Hog weights have also moved upward averaging about 281 pounds, which is 0.7 pounds higher than year ago levels. The 2-day CME Lean Hog Index continues to decline, falling 0.63 cents to 54.85 for the October 4 reporting date. However, the soon to expire October Lean Hog futures are currently pricing in further declines in the cash market, trading at an over $4 per hundredweight discount to the index. Until Hog producers finally begin to throw in the towel and begin to liquidate some of the breeding herd or U.S. pork exports improve dramatically, Hog prices appear trapped at rather depressed price levels for the foreseeable future.

Technical Notes

Looking at the daily chart for December Lean Hog futures, we notice prices have been in a "classic" downward trend since late June, with only a modest "correction" occurring during most of August. Prices are now well below both the 20- and 200-day moving averages, with prices approaching lows not seen since the early 2000s on a front-month continuation chart. The 14-day RSI has moved into oversold territory, with a current reading of 29.18. Contract lows for the December futures at 41.100 look to be the next major support level, with upside resistance found at the September 14 high of 51.150.

Michael Zarembski, Senior Commodity Analyst


October 10, 2016

"Goldilocks" Jobs Report Keeps December Rate Hike on the Table

Monday, October 10, 2016

Our neighbors to the north also reported their September employment data on Friday and unlike the modest gains in employment seen in the U.S., Canada's employment numbers were well above expectations with 67,200 jobs created. This was the best monthly performance since 2012. The unemployment did remain steady at 7% as additional job seekers went looking for work in September. The biggest surprise in the jobs data was the number of self-employment jobs created which accounted for nearly ¾ of the net-jobs created. The Canadian Dollar futures initially rallied sharply following the release of the employment report but gave back the gains to trade slightly lower as of this writing.

Fundamentals

"Not too hot and not too cold" that kind of sums up Friday's release of the September Non-farm payrolls report with the Labor Department reporting 156,000 jobs being added last month slightly below the 170,000 jobs expected. The monthly revisions were a mixed bag as well with August payrolls revised higher to 167,000 jobs created vs. the 151,000 originally reported. The gains were offset, however, by the lower revision of 23,000 jobs in July. Digging into the details of the report we find that worker wages grew by 0.2% last month to an average of $25.79 per hour. Year to date average hourly earnings are up 2.6%. Looking at the bigger picture for jobs we saw the labor-force participation rate increase by 0.1% to 62.9%. While the participation rate is up 0.5% from the start of the year, we are still at levels not seen in almost 40 years with economists citing an ageing workforce moving towards retirement and an increase in discouraged potential workers for the current low level of labor participation. The upshot to the report is that there is nothing in the data to dissuade the Federal Reserve from an interest rate hike at the December Federal Open Market Committee meeting with a hike at the November meeting all but off the table as it falls less than a week prior to the U.S. Presidential election. December Fed Fund futures are currently pricing a 69.5% probability of at least 0.25 basis point rate increase at the December meeting, which is up from about a 65% probability on Friday.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, we notice prices trading at their lowest levels since June of this year as the near-term technical picture is turning bearish. We may be at a critical juncture for the market as the 20-day moving average (MA) looks like it is preparing to cross below the 200-day MA. This is generally viewed as a bearish signal for prices and if it occurs, it would be the first time since January that the shorter term MA was below the longer term average. The 14-day RSI is also weak with a current reading of 32.04. The next support level for the front month December Bond futures is seen at the June 1 low of 162-25, with chart resistance found at the September 28 high of 170-03.

Mike Zarembski, Senior Commodity Analyst


October 11, 2016

Still taking a Pounding

Tuesday, October 11, 2016

There continues to be an inverse relationship between the FTSE 100 and the British Pound. The FTSE 100 has been hitting record highs while the Pound is trading at 30 year lows. The weaker Pound benefits exporters and hurts importers. The companies included in the FTSE 100 are mainly international firms which derive about 70% of the revenues outside of the United Kingdom.
Fundamentals
Currency traders experienced a shock last week as a two minute flash crash plunged the Pound down 6% to 1.1841. The Pound quickly recovered but recent trading has failed to stem the relentless downward trend. The Pound is now down 17% for 2016 and is the worst performing major currency this year. The Times reported today, from leaked UK Treasury papers, that the 'hard Brexit' option, in which the UK leaves the EU and does not retain access to the European Single Market, could causes losses of up to 66 billion pounds a year in tax revenue. In addition, London Mayor Sadiq Khan is expected to strongly denounce 'hard Brexit' today in a speech to the Confederation of British Industry. As the debate continues over the path the United Kingdom will take in leaving the European Union, the Pound will likely continue to be volatile.

Technical Notes

Turning to the 3 month continuation chart, we see the Pound making a series of lower highs and lower lows, a bearish trend. The 20 day moving average is sloped sharply downward, yet another bearish sign. The Pound has broken previous support at 1.25 and the next support level appears to be at the 1985 low of 1.05. 14 day Relative Strength Index is in oversold range at 21.18.

Dale Jennings, Commodity Analyst

October 12, 2016

Bearish Cattle Stampede Continues

Wednesday, October 12, 2016

Those traders who follow the seasonal tendencies will note the rather large discount that winter month Live Cattle futures are trading at when compared to the cash market. The February 2017 futures were trading at 100.550 as of this writing vs. cash prices near 102.000. Normally the Feb contract is at a nearly 10.000 premium to cash at this time of year. It may be that Futures price discount top cash that is keeping large speculative accounts net-long Live Cattle despite the trend being solidly in the bear camp. The most recent Commitment of Traders report shows non-commercial traders holding a net-long long position in Live Cattle totaling just over 32,250 contracts as of the reporting period ending October 4. Ironically, commercial traders are holding a net-short position and have added to the short position as prices continue to decline.

Fundamentals

For those traders who remember trading Pork Belly Futures, and the rather wild price swings that would occur, the Live Cattle futures market has recently started to display that type of price volatility as prices tumble to multi-year lows. Among the fundamental reasons cited for the price decline are higher beef production expected going into the 4th quarter, lackluster retail demand and competition from cheaper protein sources such as pork and chicken. While lower Cattle prices are starting to cause pain for producers, end users such as meat packers are enjoying solid profit margins which is encouraging increases in slaughter rates and adding to already ample supplies of wholesale beef. Not even reports that China was lifting a ban of U.S. Beef imports could sustain more than a brief short-covering rally when it was announced last month. Traders will get a fresh prospective as to the size of the cattle herd on feedlots when the USDA releases the monthly Cattle on Feed (COT) report on October 21. The September COT report was generally viewed as bearish by traders with total head of Cattle on feedlots up 1.63% from year ago totals and Cattle placed on Feedlots over 15% above year ago totals.

Technical Notes

Looking at the daily chart for February 2017 Live Cattle, we see the market has traded in a rather classic bear market pattern with price making a series of lower highs and lower lows for the past 12 months. Given this negative price trend, it should come as little surprise that prices are pulling away from both the 20 and 100-day moving averages to the downside and the 14-day RSI is weak with a current reading of 34.50. While the RSI is currently just above oversold levels, we do note that a bullish divergence could be forming as the RSI has failed to make a recent low despite prices trading near new contract lows. Contract lows of 99.825 are seen as psychological support for the February contract with resistance seen near the recent major high made on September 22 high at 109.125.

Mike Zarembski, Senior Commodity Analyst

October 14, 2016

Grains Turn Volatile Following USDA Report

Friday, October 14, 2016

In addition to production estimates, the USDA also reported its estimates for both U.S. and world grain stockpiles. Here the USDA lowered its 2016-17 Corn stockpiles estimate to 2.320 billion bushels from 2.384 billion bushels in September. For Soybeans, the USDA raised their forecast to 395 million bushels, vs. 365 million bushels in September. U.S. Wheat inventories were estimated at 1.138 billion bushels, vs. 1.1 billion bushels in September, but the USDA lowered its global Wheat inventories slightly to 239.7 million metric tons, vs. 240.9 million metric tons last month.

Fundamentals

Grain traders went on a wild ride on Wednesday following the release of the October USDA Crop Production and Supply/Demand report. Initially prices rallied in Soybean futures, despite the USDA raising its estimate for this season's production by 68 million bushels to 4.269 billion bushels. However, the increase was just below average trade estimates of a 4.277 billion bushel crop. For Corn, the USDA lowered its estimate for this year's production to 15.057 billion bushels, which was 36 million bushels below the September estimate. However, the rally proved to be short lived, as bearish trend following traders took advantage of the post-report rally to initiate new short positions, which capped the day's gains and ultimately sent both Corn and Soybean prices sharply lower by the close of trading. Ironically, the market had an exact opposite reaction on Thursday, with Corn and Soybean prices sharply higher to close the session. So it appears that volatility has re-emerged in the grain complex as we move through the harvest season.

Technical Notes

Looking at the daily chart for December Chicago Wheat futures, we notice the daily trading ranges have increased rather sharply the past several sessions, and the market appears to be signaling a change in control as a potential major bottom might be forming following what could be argued as an 8-year bear market trend. Prices are currently above the 20-day moving average, but still have a bit of a climb to test the longer-term 200-day moving average which currently sits at the 473.00 price level. The 14-day RSI has turned positive, with a current reading of 56.86. The low of 423.00 made back on August 25 looks to be the next significant resistance level for the December futures, with support seen at the August 31 low of 386.75.

Michael Zarembski, Senior Commodity Analyst

October 17, 2016

The New National Pastime?

Monday, October 17, 2016

While the baseball playoffs are in full swing, traders seem to have adapted Fed watching as their new national pastime. The minutes from last month's Federal Open Market Committee meeting showed a divided Fed. Ultimately, the FOMC elected to not raise rates in September, but Fed Funds futures point to the chance of a December rate increase at 60%.

Fundamentals

The labor market in the USA continues to show strength. Initial jobless claims continue to be at near record lows. The week of October 2-8 had 246,000 people apply for unemployment benefits, a 43 year low. The less volatile 4 week average of jobless claims is also at near record lows at 249,250. A tight labor market could lead to wage push inflation as employers have to raise wages in order to attract and retain employees. The uncertainty from earlier this year, first from concerns over a slower growth rate in China and then secondly from the UK's shock decision to leave the European Union has subsided. However, GDP growth in the USA has been slower than originally forecast and there is uncertainty going into the general election in November.

Technical Notes

Turning to the 2016 continuation chart for the E-mini S&P chart, we see a short-term bearish pattern has emerged. However, the recent pullback still has the contract trading above the 2000 level, which was support after the EU referendum and far above the 1800 support level during the first two months of 2016. The 20 day simple moving average is now short term resistance. 14 day RSI is a mildly bearish 41.28

Dale Jennings, Commodity Analyst


October 19, 2016

No Cooling-Off of Coffee Bull Market

Wednesday, October 19, 2016

The International Coffee Organization expects a global Coffee supply deficit of 3.3 million 90-kg bags this season which would be the second consecutive season of a deficit. The outlook for next season is also negative as lower production is expected out of several major Coffee producing nations including Brazil, Columbia and Vietnam.

Fundamentals

Bullish traders appear to have embraced the Coffee futures market as prices are hovering near their 2016 highs. Among the fundamental factors attributed to the run-up in prices are concerns about Brazilian Coffee production in 2017 as the upcoming crop moves into the so called "down cycle" for Arabica Coffee trees. A severe drought in Vietnam has curtailed the nations Robusta Coffee harvest, which is expected to be down over 10% this season. Higher prices for the "lower quality" Robusta could prod end-users towards purchasing more Arabica Coffee which could help to support prices as demand increases. Some producers have also been reluctant to sell Coffee inventories to the export market, preferring to hold supplies in the hopes of higher prices in the coming months. Both large and small speculators are currently holding a net-long position in Coffee futures according to the most recent Commitment of Traders report. As of the reporting period ending October 11, the combined speculative position totaled 47,106 contracts. Should prices move to new yearly highs, we may see additional buying emerge as trend-following traders add to existing long positions and it will be up to the commercial hedgers to sell aggressively into the rally to keep further price gains in check.

Technical Notes

Looking at the daily chart for December Coffee futures, we notice on Tuesday that prices attempted to test the 2016 high of 160.90 but ran into selling pressure as prices traded near the 160.00 price level. However, overall momentum still favors the bulls as prices remain well above both the 20 and 200-day moving averages and the 14-day RSI remains strong with a current reading of 64.41. The September 22 high of 160.90 looks to be key resistance for the December futures, with chart support found at the October 7 low of 145.20.

Michael Zarembski, Senior Commodity Analyst

October 20, 2016

Meeting of the Minds

Thursday, October 20, 2016

Today's Spotlight Market: While Brexit isn't officially on the agenda for the EU summit in Brussels today; it is surely the elephant in the room. EU leaders are steadfastly refusing to begin talks with the United Kingdom about exiting the EU until the UK actually initiates Article 50, beginning a two year process for the exit. Prime Minister Theresa May indicated at the recent Conservative Party Conference that the UK will initiate Article 50 no later than the end of March 2017. However, although no formal talks are scheduled this week in Brussels, the Prime Minister is expected to informally discuss the upcoming exit at a working dinner tonight with other EU leaders.

Fundamentals

The British Pound had a brief rebound earlier this week after a UK government lawyer indicated that Parliament would very likely have a vote on the final terms to leave the European Union. However, this optimism was countered by news of rapidly increasing inflation. Consumer price growth in the UK reached 1% in September, almost double the 0.6% for August. The falling Pound means that imports are more expensive. Recently, UK supermarket chain Tesco was involved in a dispute with supermarket supplier Unilever over higher prices. The next meeting of the Monetary Policy Committee of the Bank of England is set for November 3. The Bank of England cut interest rates in August to 0.25% and economists are divided on their opinion of a further rate cut at the November meeting.

Technical Notes

Turning to the three month continuation chart, the patterns are all bearish for the Pound. Ever since the result of the EU referendum was announced, the trading pattern has shown a series of lower highs and lower lows. Not only is the Pound trading well below the 20 day simple moving average, but the slope of the moving average is turning steeply downward. 14 day relative strength index is a bearish 30.22.

Dale Jennings, Commodity Analyst

October 21, 2016

Where Did All the Oil Go?

Friday, October 21, 2016

In addition to the Crude Oil inventories, the Energy Information Administration also released the weekly data for the Oil products such as Gasoline and the Middle Distillates (Heating Oil and Diesel Fuel). Gasoline inventories rose last week by 2.469 million barrels to stand at 228 million barrels. Traders were expecting a draw of close to 1 million barrels. Distillates, on the other hand, saw a draw of 1.24 million barrels last week to stand at 155.7 million barrels. However, the trade was looking for a 1.7 million barrel draw. Gasoline Demand fell by 466,000 barrels last week, while Heading Oil demand fell by 279,000 barrels.

Fundamentals

Remember about 9 or 10 months ago when all the news headlines talked about the global crude oil glut and prices were heading to $20 per barrel? Well as we start the 4th quarter of 2016, Oil futures prices are now above the yearly highs as U.S. Oil inventories continue to get drawn down. In fact, according to the Energy Information Administration (EIA), U.S. Crude inventories have seen a draw in 6 of the past 8 weeks! Last week the EIA reported that U.S. Crude Oil inventories fall by just over 5.2 million barrels. The Crude Oil draw as the opposite of what market participants were expecting, with the average pre-report estimate calling for a 2 million barrel increase. Crude Oil imports also fell last week by 954,000 barrels which was a significant factor in the weekly drawdown. With U.S. Shale Oil production still well off its highest production levels and an upcoming OPEC meeting at the end of the month, it appears that Oil bears are covering short positions as prices continue to rebound which only helps to encourage further buying by trend-following commodity funds as prices make new yearly highs.

Technical Notes

Looking at the daily chart for December Crude Oil, we notice prices attempting to establish a new price level between 50.00 and 52.50. This level is near the highs for the year and should the price base hold, it has the potential to be the platform for a price move higher. The market is currently holding above the 20-day moving average which favors short-term energy bulls but the 14-day RSI has started to turn lower and is now at a more neutral reading of 57.70. Large speculators were aggressive net- buyers of Crude Oil futures last week with the most recent Commitment of Traders report showing non-commercial traders adding over 57,600 new net-long positions during the reporting period ending October 11. This brings the overall non-commercial position to a net long 458,776 contracts. Commercial interests are on the other side of the trade from the large speculators, having added over 57,000 new net-short positions during the same time frame. The October 5 low of 49.68 now appears as support for the December futures, with resistance found at the October 19 high of 52.22.

Mike Zarembski, Senior Commodity Analyst

October 24, 2016

Gold not Shining as Bright as Dollar Rallies

Monday, October 24, 2016

Large speculators having been reducing their net-long positions in the entire precious metals complex as the odds of a December Federal Reserve interest Rate hike increases. The Commitment of Traders report that ended October 11 showed non-commercial traders reduced their net-long position in the precious metals complex by over 70,000 contracts, with the greatest reduction in Gold. Small speculators were also reducing net-long positions in the metals, with Palladium futures seeing the largest reduction at 614 contracts.

Fundamentals

While the Gold futures market has been a rather strong performer for commodity bulls in 2016, the prices have run up against some headwinds of late in the guise of a stronger U.S. Dollar. A stronger "greenback" is viewed as a negative for Dollar denominated commodities, as it is more expensive for non-Dollar buyers. In the case of Gold, the prospects of a Federal Reserve interest rate hike in December and a rising Dollar is a double whammy for prices, as owning Gold does not pay any dividends and, in fact, has costs associated in owning the physical metal. While the Gold charts are showing prices off recent highs, investors in Gold ETFs are not yet ready to throw in the towel, as holdings have held steady or have risen the past two weeks. In fact, Gold prices are holding up relatively well when compared to that of its "sister" in the precious metals complex--Silver, and both are doing stellar when compared to its "cousins" Platinum and Palladium. As we head into the final weeks of 2016, many Gold traders will be watching closely upcoming economic data for signs regarding whether the Federal Reserve will indeed raise interest rates this year and if so, will it be a "one and done" event or the start of a series of rate hikes by the Fed, which would likely increase the pressure on Gold bulls in a rising interest rate environment.

Technical Notes

Looking at the daily chart for December Gold, we notice prices have fallen from recent highs but appear to be trying to consolidate near the 1250.00 to 1270.00 price area. Prices are also trading near both the 20- and 200-day moving average (MA), and it appears that the 20-day MA is attempting a test of the 200-day MA. A crossover of the 20-day MA below the 200-day MA is generally viewed as a bearish technical signal. The 14-day RSI is also weak but holding above oversold levels with a current reading of 38.20. We should also note that trading volume has fallen during the recent price consolidation, so traders may want to pay heed to volume levels should prices move above or below recent support and resistance, as a move out of consolidation on above average trading volume could be an indicator as to the direction of the next price trend. The low of 1243.20 made on October 7 looks to be the next support level for the December futures, with resistance appearing at the October 20 high of 1275.90.

Mike Zarembski, Senior Commodity Analyst

October 25, 2016

Euro Looking for a Turnaround?

Tuesday, October 25, 2016

Last week, the European Central Bank left interest rates unchanged, as expected. Interest rates are at a negative 0.4%. More interestingly, there were no comments made about the program of quantitative easing, which is scheduled to end in March 2017. The ECB will review new economic data at their December meeting and possibly make a decision if the quantitative easing program will continue. The current quantitative easing program has the ECB buying 80 billion Euros of bonds per month.

Fundamentals

The Eurozone got some good news yesterday as the ISH Markit purchasing managers' index rose to 53.7 from 52.6. A level above 50 indicates expansion. Continued expansion of growth could influence the ECB to taper quantitative easing in 2017. Inflation is currently at 0.4% and ECB President Mario Draghi predicted this will rise. However, there are pressures on the Eurozone. In March, the United Kingdom is expected to trigger Article 50 which will begin the two year negotiating process for leaving the European Union and potentially the European Single Market. Also, there is a possibility that the CETA trade agreement between the European Union and Canada will fail to gain approval. CETA has the approval of 27 of the 28 EU nations, but the deeply divided regions in Belgium have not yet given approval.

Technical Notes

Turning to the three month continuation chart, we see several bearish signs for the Euro. 14 day relative strength index is in oversold territory at 26.49 The 20 day simple moving average (SMA) recently crossed below the 50 day SMA and the slope of the 20 day SMA has turned sharply downward. The 1.08 level seems to be a support level while resistance appears to be around 1.15.

Dale Jennings, Commodity Analyst


October 26, 2016

Copper Prices Rally Sharply on Chinese Base Metals Demand

Wednesday, October 26, 2016

In addition to an improving supply and demand situation for Copper, we see that large speculative accounts are still overall net-short Copper futures according to the most recent Commitment of Traders report. During the reporting period ending October 18, non-commercial traders, normally large speculators and commodity funds, were holding a net-short position of 11,175 contracts having just liquidated an overall net-long position last week. Commercial traders, on the other hand are now net-long Copper taking the other side of the trade from the large specs.

Fundamentals

Copper futures posted their largest one-day price rise since early September on Tuesday, as short-covering buying tied to rising base metal prices in China put a halt to the recent downtrend. Reports that Chinese steel and iron prices rose sharply in the world's most populous nation spilled over into copper trading as traders noted domestic Chinese inventories of industrial metals has been falling. Traders are starting to embrace the notion that we may be starting to see Chinese infrastructure spending increasing, which if accurate and sustainable, could be a signal that a near-term low may be forming for many products in the industrial commodity sector. Data from the Shanghai exchange shows Copper inventories held at approved warehouses fell last week which has been the general trend for the past 3 months.

Technical Notes

Looking at the daily chart for December Copper, we notice Tuesday's over 2% price rise was halted just short of the 2.1500 price level. In addition, Tuesday's highs also stalled near the convergence of the 20 and 200-day moving averages. Since early August we have seen prices starting to consolidate with an upper boundary forming at 2.2200 and a floor setting up at 2.0600. The 14-Day RSI has become neutral with a current reading of 50.03.

Mike Zarembski, Senior Commodity Analyst


October 27, 2016

Post Brexit Optimism?

Thursday, October 27, 2016

3rd quarter GDP for the United Kingdom came in at a positive growth rate of 0.5%, which is down from 0.7% the previous quarter. The 0.5% was higher than the forecasted range of negative 0.1% to positive 0.3%. However, the positive growth rate came only from the service sector, which makes up 75% of the UK economy. The service sector grew by 0.8%, while construction, agriculture, and industrial production all declined.

Fundamentals

An additional positive sign for the UK was also announced this morning, as Nissan confirmed that they will produce the next model of the Qashqai SUV at their plant in Sunderland which will secure the 7000 jobs at the plant. In addition, earlier this week, UK Transport Secretary Chris Grayling announced plans to add a third runway to London's Heathrow airport. This expansion is anticipated to add up to 61 billion Pounds to the economy as well as a potential 77,000 jobs. Finally, it appears the stalemate has been broken in the European Union over the CETA trade agreement between the European Union and Canada. This may provide hope that although negations between the EU and the UK may be contentious at times, a deal will eventually be reached.

Technical Notes

Turning to the 3-month continuation chart, the British Pound continues to remain in solidly bearish territory. The 20-day simple moving average (SMA) crossed below the 50-day SMA in early October, and the divergence between the two moving averages continues to increase. Since the beginning of September, the Pound has shown the bearish trend of lower highs and lower lows. 14-day relative strength index is at 30.96, just above the oversold level.

Dale Jennings, Commodity Analyst


October 28, 2016

Crude Inventories Decline but Prices Fall Anyway

Friday, October 28, 2016

The energy products saw a larger than anticipated draw from inventories last week according to the most recent Energy Information Administration report. Gasoline inventories fall by 1.956 million barrels last week versus the average trade estimate of a 600,000 barrel draw. Distillates, including Diesel fuel and Heating Oil saw inventories decline by 3.354 million barrels last week, which was well above the 900,000 barrel draw traders were expecting. Refinery utilization was down by 0.1% to 85.6% last week.

Fundamentals

The Crude Oil market has hit a spurt of negative sentiment as the lead month December futures have fallen to 2-week lows. Prices are currently trading above the lows for the week as the weekly Energy Information Administration (EIA) energy stocks report showed a surprising drop in Crude Oil inventories last week. The 553,000 barrel drawdown was the 7th draw in the past 8 weeks, surprising traders who were expecting an almost 2 million barrel increase! However, the current negative sentiment for Crude overwhelmed a brief rally attempt following the EIA release which kept price in the negative column at settlement. Overshadowing the weekly drawdowns are concerns that U.S. Oil production will begin to ramp-up should prices start holding over $50 per barrel as the most efficient Shale Oil producers are able to turn a profit at over $50 per barrel. In addition, traders remain skeptical that OPEC members will ultimately reach an agreement to cut Oil production and even if an agreement is reached, it remains to be seen if the individual cartel members will actually abide to any production cut-backs. In fact, Iraq has already stated that it needs all the Oil revenue it can produce to help with its military efforts against ISIS. While not an OPEC member, Russia had previously stated that it would abide in a production cut should OPEC agree to cuts but even this is uncertain given the nations own financial strains.

Technical Notes

The Crude Oil market has hit a spurt of negative sentiment as the lead month December futures have fallen to 2-week lows. Prices are currently trading above the lows for the week as the weekly Energy Information Administration (EIA) energy stocks report showed a surprising drop in Crude Oil inventories last week. The 553,000 barrel drawdown was the 7th draw in the past 8 weeks, surprising trades who were expecting an almost 2 million barrel increase! However, the current negative sentiment for Crude overwhelmed a brief rally attempt following the EIA release which kept price in the negative column at settlement. Overshadowing the weekly drawdowns are concerns that U.S. Oil production will begin to ramp-up should prices start holding over $50 per barrel as the most efficient Shale Oil producers are able to turn a profit at over $50 per barrel. In addition, traders remain skeptical that OPEC members will ultimately reach an agreement to cut Oil production and even if an agreement is reached, it remains to be seen if the individual cartel members will actually abide to any production cut-backs. In fact, Iraq has already stated that it needs all the Oil revenue it can produce to help with its military efforts against ISIS. While not an OPEC member, Russia had previously stated that it would abide in a production cut should OPEC agree to cuts but even this is uncertain given the nations own financial strains.


October 31, 2016

Recent Cocoa Rally is Starting to Melt

Monday, October 31, 2016

Both large and small speculators are holding an overall net-long position in Cocoa according to the most recent Commitment of Traders report. During the reporting period ending October 18, the combined non-commercial and non-re-portable net-long position totaled just over 27,000 contracts. This was an increase of nearly 3,500 contracts for the week. This was during a period when prices had rallied off of 18-month lows.

Fundamentals

Cocoa futures traders have been on a roller-coaster ride of late with the market's current downward trend being interrupted with bouts of short-covering buying. Fundamentally, improving crop prospects in West Africa, where about 2/3 of the world's Cocoa is grown is helping to weigh on Cocoa prices as it appears that Cocoa supplies will rebound from last season's global market deficit. Lower quarterly cocoa grinding figures out of North America also was weighing on prices but year over year grindings were still up 0.15%. As we move into 2017, traders will pay particular attention to production out of the Ivory Coast, which is the largest Cocoa producing nation. Current forecasts for the nation's main crop are for production to total between 1.25 and 1.3 million metric tons, although some analysts are starting to revise the forecast downward. In addition, the current weakness in the value of both the British Pound and the Eurocurrency vs. the U.S. Dollar may also hurt European Cocoa demand although European Cocoa grinding may still increase next year as the market begins to recover from last season's large Cocoa deficit.

Technical Notes

Looking at the daily chart for December Cocoa, we notice prices have rebounded off of recent lows, which is the 6th minor price recovery since the last major high was made back in early May. Friday's price recovery is keeping prices above the 20-day moving average, but still trails the longer-term 200-day moving average which I still nearly 200 dollars above current prices. The 14-day RSI has recovered from near oversold levels and is now reading a more neutral 48.30. The 2016 lows at 2625 are seen as support for the December contract, with chart resistance found at the October 10 high of 2799.

Mike Zarembski, Senior Commodity Analyst