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Global Commodity Technical Analysis Report

Commodities Facing Sharp Correction Amid Economic Slowdown, 2 Commodities in a Good Trading Range -

Jun 22, 2022

 

Global Commodity Market Wrap-Up

Last week, commodities prices tanked sharply amid an economic slowdown and rising dollar index prices. Besides, a rise in interest rates by 75 basis points by Federal Reserve added fuel to the fire. Gold prices have declined and settled with a weekly loss of 1.93% while silver prices also settled at a weekly loss of 1.57%. Base metals also faced heat from the global economic slowdown. Copper and Lead prices have witnessed a weekly decline of 5.08% and 3.96%, respectively while Zinc price has also declined and settled with a weekly loss of 4.47%.

On the Energy front, Crude oil prices declined heavily last week due to weak economic growth which hampered oil demand and settled at a weekly loss of 8.58%. Natural gas prices also declined sharply and settled at a weekly loss of 22.12%. Agricultural commodities prices have traded in a negative zone in line with the decline in crude oil prices. Notably, Soybean and Sugar prices witnessed 2.49% and 1.43% weekly declines respectively. However, Corn prices have surged last week and settled at a weekly gain of 1.45% as the commodity is trading in a strong territory technically.

In the recent week, primarily all the commodities prices are showing weakness amid increasing US dollar prices. Precious metal prices are unable to pick up an upside momentum and still trading in a short-term downtrend technically while Base metals are slightly drifting down due to economic slowdown resulting in weak demand. On the energy front, Crude oil and Natural gas prices are extending weakness this week as US President expected to cut taxes on gasoline on Wednesday to tackle increasing oil and gas prices. The agricultural commodity basket is also showing some correction from higher levels.

The upcoming macro events that may impact the market sentiments include an update on Unemployment Claims, Crude Oil Inventories, and Durable Goods Orders released monthly.

Having understood the global commodities performance over the past one week, taking cues from major global economic events, and based on our technical analysis, noted below are our recommendations with the generic insights, entry price, target prices, and stop-loss for Lumber July Futures (CME: LBN2) and Soybean Oil July Futures (CBOT: BON2) for the next 1-2 weeks’ duration:

Lumber July Futures Contract (CME: LBN2)

Price Action and Technical Indicator Analysis:

CME Lumber July Futures' prices recently broke a downward sloping trend line with good volume support and the prices are sustaining above the breakout level for the past one week. Prices are currently hovering below its 21-period and 50-period SMA which are acting as immediate resistance levels. The leading indicator RSI (14-period) stood up from the oversold region and currently trading at ~37.19 levels and supporting a positive stance. Now the next crucial resistance level appears to be at USD 655.00 and USD 720.00, and prices may test these levels in the coming sessions (1-2 weeks).

As per the above-mentioned price action and technical indicators analysis, we can conclude that Lumber July Futures (LBN2) is looking technically well-placed for a ‘Buy’ rating. Investment decision should be made depending on an investors’ appetite on upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered. Technical summary of our ‘Buy’ recommendation is as follows:

CBOT Soybean Oil July Futures (CBOT: BON2)

Price Action and Technical Indicator Analysis:

On a weekly chart, CBOT Soybean Oil July futures’ price broke an upward sloping trend line by downside and the prices are sustaining below the breakout level for the past one week. The prices are also trading below its 21-period SMA, which also supports the bearish stance. The momentum oscillator RSI (14-Period) is trading at ~48.90 levels further indicating weak price momentum. Now the next crucial support level appears to be at USc 65.11, and prices may test that level in the coming sessions (1-2 weeks).

As per the above-mentioned price action and technical indicators analysis, we can conclude that Soybean Oil July Futures (BON2) is looking technically well-placed for a ‘Sell’ rating. Investment decision should be made depending on an investors’ appetite on upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered. The summary of our recommendation is as follows:

Upcoming Major Global Economic Events

Market events occur on a day-to-day basis depending on the frequency of the data and generally include an update on employment, inflation, GDP, WASDE report, consumer sentiments, etc. Noted below are the upcoming week's major global economic events that could impact the commodities prices:

Futures Contract Specifications 

Disclaimers 

Investment Related Risks: Based on the technical analysis, the risks are defined as per risk-reward ratio (~0.80:1.00), however, returns are generated within 1-2 weeks’ time frame. This may be looked at by Investors with sufficient risk appetite looking for returns within short investment duration. Investment recommendations provided in this report are solely based on technical parameters, and fundamental performance of the commodities has not been considered in the decision-making process. Other factors which could impact the commodity prices include market risks, regulatory risks, interest rates risk, currency risks, and social and political instability risks etc.

Entry Price: For the given recommendation(s), the Entry Price is assumed to be at or above/ at or below a certain level. However, a slight deviation in the 'Entry Price' can be considered depending upon the upside/downside potential expected and taking into consideration the Target levels indicated. For example: - An Investor can consider entering the commodity at or above/ at or below a certain range (1%-1.5%) from the Entry Levels recommended depending upon the potential upside/downside expected. Therefore, there can be a slight deviation between the ‘Entry Price’ and the ‘Current Market Price (CMP)’. The ‘Entry Price’ indicated above may or may not be same as the ‘CMP’ shown in the price chart.

Note 1: Investors can consider exiting from the commodity if the Target Price mentioned as per the Technical Analysis has been achieved and subject to the factors discussed above.

Note 2: How to Read the Charts?

The Green colour line reflects the 21-period moving average while the red line indicates the 50- period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The Black colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The Blue colour bars in the chart’s lower segment show the volume of the commodity. Commodity with high volumes is more liquid compared to the lesser ones. Liquidity in commodity helps in easier and faster execution of the order. 

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level where-in the commodity prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the commodity prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the commodity prices.

Risk Reward Ratio: The risk reward ratio is the difference between an entry point to a stop loss and profit level. We suggest ~80% Stop Loss of the Target 1 from the entry point.

The reference date for all price data, volumes, technical indicators, support, and resistance levels is June 22, 2022 (Chicago, IL, USA 01.57 AM (GMT -5). The reference data in this report has been partly sourced from REFINITIV. 

Note: Trading decisions require a thorough analysis by investors. Technical reports in general chart out metrics that may be assessed by investors before any commodity evaluation. The above are illustrative analytical factors used for evaluating the commodity; other parameters can be looked at along with additional risks per se.


Disclaimer-

Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.

Kalkine Media LLC, an affiliate of Kalkine Equities LLC, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.