Questions or Comments on This Article

Friday's treasury markets forged some minor bearish divergence technically at the same time that the equity markets managed to hold key support and rally nicely last week. However, it is important to note that the equity markets, including the S&P 500, Dow, and Nasdaq futures continue to trade right around their 200-day moving averages. The highs made in June continue to be the major resistance/pivot level that the market is looking for to confirm a longer-term bullish sentiment change.

The employment situation continues to be lackluster and will likely contain any upside momentum. Last Friday's non-farm payroll report confirmed that we lost 54,000 non-farm payrolls in August as a result of government census job losses, but the market embraced this number with enthusiasm. Private payrolls increased by 67,000 jobs compared to an expected increase of 40,000. Analysts have cited the fact that many private-sector companies have reduced the work force to a point that they are actually becoming less productive and need to start hiring again. We don't expect major advances in job growth in the next year or two, but improvements are always welcome.

According to the Institute for Supply Management (ISM) data released last week, the manufacturing index continued to show month-to-month growth at 56.3. Unfortunately, the new orders component slowed from the prior month at 53.1 which leaves the market questioning future growth prospects. The non-manufacturing data slowed further than expected at 51.5. The new orders and employment components of the report contracted more than expected as well, and the lack of certainty is leaving investors on the sidelines.

The growth of the US economy seems to be contingent upon global growth prospects out of Asia since US households continue to be in the savings mode.

If you'd like to learn more about futures trading or the interest rates market specifically, please contact RJO Futures Senior Trading Broker Donna Heidkamp at 800-535-4396 or dheidkamp@rjofutures.com.

December 30-Year Bond, Daily

Source CQG, Inc. (c) 2009. All rights reserved worldwide. www.cqg.com

December 30-Year Bond, Weekly

Source CQG, Inc. (c) 2009. All rights reserved worldwide. www.cqg.com

Questions or Comments on This Article

We are looking to sell the EUR/GBP. The pair had a short rally to the 61.8% Fibonacci level and is starting to reverse. A short position should be entered at .83358 with a stop loss at .8401 Take profits around .8146.

If you would like to receive some of my short-term and day trade recommendations in the currency markets feel free to contact me at 312-373-5881 or jshelton@rjofutures.com.

Natural gas prices have run into increased pressure from a lack of tropical storms in key production areas as well as mixed economic data. While pre-Labor Day storms boosted natural gas, gains were reduced Monday. Temperatures through September 16th are forecast to maintain a normal range in the major natural gas consumption regions. Although there are a few disturbances in the Atlantic Ocean, the probabilities of these materializing into a major tropical storm are quite low. These two factors, along with a continuation of mixed economic data and uncertainty of the economic recovery in the United States, don't lend support to natural gas in the foreseeable future. I believe we will continue to see a volatile trading environment ahead, and I would sell October natural gas at $3.955, risking the trade to $4.100 with a profit objective of $3.500.

If you'd like to learn more about futures trading or the energies market specifically, please contact RJO Futures Trading Consultant Kevin Craney at 312-373-5354 or kcraney@rjofutures.com.

Natural Gas - Daily

Source RJO Vantage

Crude oil is under considerable pressure as seasonal tendencies as well as outside markets work against it, with price levels currently at $73 a barrel.

Typically, Labor Day marks the peak of seasonal demand for oil. With supplies steadily building over the past several weeks, the anticipated slowdown in demand could translate into lower prices. In addition there are some troubling signs coming out of Europe once again. Wide-scale labor strikes are planned in France as the Government raises the minimum retirement age from 60 to 62. Also, the stress tests that Euro Zone banks had undergone recently are being portrayed as weak and ineffective. This has prompted traders to shift money back into the US dollar and Japanese yen and away from the euro and British pound.

The strength in the dollar negatively affects crude as each barrel is priced in dollars. Thus as the dollar rises crude becomes more expensive on the world market and demand starts to wane until prices come down. With these forces at play and volume relatively thin due to Rosh Hashanah and Ramadan, volatility could be magnified in the next week.

From a technical perspective, the charts indicate that we could be pinned within a relatively tight range for the week. The $70 level has shown ample support for the last several months, with the $75 level proving to be a good resistance level. We would tread lightly in these markets as there is no discernable direction. Be patient and wait for crude to test the extremes of this range before jumping in. Buy crude in the $70-71 range and sell at $75-75.50.

If one wanted to play the bearish seasonal tendencies of crude coupled with uncertainty regarding the economy, a $70-$67 bear put spread expiring in 39 days could be bought for $400 with a potential profit of $3000 - not a bad risk/reward trade.

If you'd like to learn more about futures trading or the energies market specifically, please contact RJO Futures Trading Consultant Tarik Husseini at 312-373-5461 or thusseini@rjofutures.com.

As we enter the start of the holiday season as well as harvest, look for a clearer supply-and- demand picture in the cocoa market. Last Friday, September 3rd, cocoa rose the most in a month. This is believed to be in correlation with rising demand.

The ICE Futures Exchange monitors warehouses levels, and projections have them at the lowest level since January. Prices fell off over the past couple of months on both the Liffe and ICE contracts.

On Tuesday September 7th cocoa traded down on a stronger dollar. Funds continue to hold a significant amount of short positions, adding an additional 1,345 the week of August 30th through September 3rd.

As the market tries to adjust to the export tax news out of Indonesia and Ivory Coast crop production look for cocoa to trade sideways. Key levels to pay close attention to will be support at 2681, resistance at 2810 and 2919. Look for opportunities to get some exposure in this price movement using options.

If you'd like to learn more about futures trading or the cocoa market specifically, please contact RJO Futures Trading Consultant Kathryn Fischer at 800-453-4494 or kfischer@rjofutures.com.

December Cocoa, Hourly

Source CQG, Inc. (c) 2009. All rights reserved worldwide.

Focusing more on the technical analysis, the market is bullish. The trend has been up and looks incredibly strong. Momentum appears to be going strong and nothing can stop it. That being said, with such an incredibly strong chart it is difficult to want to jump into the market, as something this strong should require a pullback. Right?

If you'd like to be aggressive, jump in, but be cautious. Looking at the 60-minute chart below, the nearest support level falls at 8859 with second support at 8601. Getting into this now requires an individual trader to look at his or her risk tolerance.

If you'd like to learn more about futures trading or the cotton market specifically, please contact RJO Futures Trading Consultant Mike Rataj at 800-453-4494 or mrataj@rjofutures.com.

Cotton, Hourly

Source RJO Vantage

Cotton, Monthly

Source RJO Vantage

The price of wheat, corn and other grains rose last week after Russia said it would extend a grain export ban by nearly a year and traders further cut their forecast for global crops. On Friday, European benchmark Liffe November milling wheat rose 232 a ton up 5.2% on the week. The cost of European wheat has risen 80% since the beginning of the year.

Also on Friday, agricultural consultant F.O. Licht cut its forecast for the world's wheat harvest in 2009-2010 to 641.2 million tons, down from last year's 675 million tons. Last month, the German-based company forecasted a crop for this season of 645.2 million tons. The cost of barley and rice – barley is a key feed for the livestock industry in Europe - also moved higher for the week.

The grain markets are likely to trade sideways this week, awaiting a crop report on Friday by the US Department of Agriculture that will update Washington's outlook for the world's grain crops. As always the focus is not whether this report will be bearish or bullish, but the market's response. The trend has been up and we would look for this trend to continue. Buying on breaks and/or buying at lower prices are how we would advise you to trade.

The rapid surge in grain prices has prompted concerns about a return of the 2007-2008 food shortages and riots in emerging countries. Renewed violent protests broke out in the Mozambican capital of Maputo on Friday; two days after riots over a bread price increase left seven dead. Six people were also wounded in protests in the central town of Chimolo, Lusa news agency reported, in a sign that the unrest may be spreading to other parts of the country. The protests followed the government's decision to lift the price of bread by 30 percent and water and electricity prices by more than10 percent.

If you'd like to learn more about futures trading or the agricultural market specifically, please contact RJO Futures Senior Trading Broker Stephen Davis at 800-367-7181 or sdavis@rjofutures.com.

CRB Index, Weekly

Source CQG, Inc. (c) 2009. All rights reserved worldwide.

Disappointing early harvest corn reports, declines in private crop production estimates and ongoing strong overseas demand for the three major US crops have firmed prices ahead of the upcoming USDA monthly US crop production and supply/demand revisions, which will be released on September 10.

This year's early planting and above-normal temperatures during the growing season have rapidly advanced 2010's corn development. Most of the primary Midwest states are reporting that denting of this year's crop is 40-50% over their five-year average and 3-6 times further along in maturity than last year's crop. This suggests reduced ear filling may shave this month's national yield. Because of this, September's US corn yield could drop to 162.5 bu. this month with Mid-South and early season Eastern Corn Belt yields reports currently verifying this trend to date. Last week's stronger-than-expected June ethanol output update vs. the newly initiated weekly report for the same period and a late August uptick in production suggests that old-crop corn demand could decrease 2009/10's carry-in by 25 million, even with old-crop shipments being shaved. The current price spread vs. wheat and ongoing reports of further declines in the Former Soviet Union's coarse grain output suggests the USDA needs to increase its export forecast by 150 to 250 million bu. The USDA may lessen feed's 2010/11 demand, but this month's new-crop ending stocks could still be 1.035 billion bu. - the tightest stocks-to-use level since the 1995/96 crop year.

US wheat demand this year has also remained robust (3rd highest for late August) as Russia has indicated that it's unlikely that they will export any wheat until 2001 or next summer's harvest. With dry pockets being reported In Argentina and Western Australia, we expect the USDA to increase exports by 50 million bu., pulling 2010/11's ending stocks to 903 million bu. No US wheat production numbers will be updated on this report as this information will be done on the USDA's Small Grains report on September 30.

Dryness in the southern sections of the Midwest during August and a 2% decline in soybeans' top two rating levels suggest that this oilseed's yield could slip ½ bu. to 43.5 bu. on the USDA's upcoming production report on Friday AM. Strong late season export shipments also suggests the USDA will need to up this demand level by 25 million bu. to 1.495 billion, but they will also likely cut last year's residual demand by 10 million leaving 2009/10's ending stocks at 145 million vs. 160 million last month. This year's US export sales running ahead of last year's record level for this date should also prompt a 15-20 million increase in US exports, even if South America's crops are raised slightly this month. These adjustments could bring soybeans' 2010/11 ending stocks down to 290 million from 360 million last month.

With plentiful overseas crop information, lower-than-expected early yield reports from the Mid-South and the southern areas of the Midwest and heavy investor interest in grains and oilseeds, producers should be prepared for more volatility as we enter the upcoming fall harvest. Given the current potential tightness in corn supplies to possible historic levels and better country reports for US soybeans yields, producers should increase 2010/11 soybean marketings to 60-65% while holding new-crop corn sales at 45-50%. Livestock and end users should utilize any 25-30 cents break to have the first six month of coverage of corn usage covered. Wheat should have 65-75% of 2010/11 sales accomplished at current levels and begin 2010/11 crop marketings at 15% when Chicago wheat is above $7.25.

Questions or Comments on This Article

In the last issue of eView we pointed out a unique feature of the CBOE Volatility Index® (VIX®), futures forward curve at that time, specifically a kink in the normally smooth curve with the December 2010 (Dec) future trading at a price below both the November 2010 (Nov) and January 2011 (Jan) futures.

We suggested that it might be possible to structure a trade that would capture any smoothing of the curve while cautioning that the VIX futures forward curve differs from most forward curves as there is no carry opportunity, no deliverable volatility product, and no volatility silo for storage of volatility one month for delivery in another month.

Source CFE/CBOE, Differential Research, LLC

From the date of the last issue, August 24th through September 3rd, the November, December and January VIX futures all fell in price. The Nov and Dec futures fell nearly in tandem, "un-kinking" on September 2nd, when the Nov future's settlement price fell below the Dec future's settlement price.

Source CFE/CBOE, Differential Research, LLC

Looking at the changes in the VIX futures time series or forward curve shows that the curve did not so much "un-kink" as steepen. Given the steepening, the relationship between Nov and Jan widened the greatest; buying Jan and selling Nov therefore the most profitable trade. The "butterfly" trade - designed to have less exposure to changes in volatility expectations in general, selling Nov and Jan and buying two Dec - was less profitable but the spread was also less volatile.

Source CFE/CBOE, Differential Research, LLC

With medium- and long-term implied volatility historically high relative to both historic implied levels as well as current realized volatility levels, the curve is more likely to remain flat or in contango than to invert into backwardization. Should the VIX time series maintain its current shape the Dec-Nov spread will likely continue to widen.

Source CFE/CBOE, Differential Research, LLC

Questions or Comments on This Article

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