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Global Commodity Technical Analysis Report

Commodity Prices are Hovering in an Overbought Region, 2 Commodities in a Sell Zone – Crude Oil, Zin

Feb 16, 2022

Global Commodity Market Wrap-Up

Last week, most of the commodities witnessed an upside rally. Persistent weakness in dollar index prices, recent conflict between Ukraine-Russia, and continuous weakness in the Global markets kept the overall commodity prices at the higher end. Precious metals also showed an upside rally last week with Gold prices breaking crucial resistance levels by an upside. Notably, Gold prices settled at a 1.89% weekly gain while silver prices settled at a weekly gain of 3.96%. Base metals are currently hovering in a range with a bullish tone though the prices are trading in an overbought zone. Notably, Lead and Zinc prices witnessed a weekly surge of 4.56% and 0.08% respectively while copper also traded in a range with a weekly gain of 0.29%.

On the Energy front, Crude oil prices continued to surge with eight consecutive rallies over the Russia-Ukraine event. However, crude oil prices are now getting resistance technically and the prices are trading in an overbought zone. Crude oil settled at a weekly gain of 0.86%. Natural gas prices declined sharply last week and settled at a weekly loss of 13.80%. Agricultural commodity prices are mostly trading in a range with a positive bias.

In the recent week, commodity prices are showcasing mixed signals ahead of the US FOMC Meeting minutes which might decide the future price direction. Precious metals are showing good upside momentum and are currently trading in a bullish range. Base metals are still trading in a tight range. On the energy front, Natural gas prices are reversing from lower levels after a sharp decline last week while crude oil is facing stiff resistance from higher levels. Agricultural commodities are showing weak momentum in the existing week.

The upcoming macro events that may impact the market sentiments include an update on US Retail Sales, Crude Oil Inventories, FOMC Meeting Minutes and Unemployment Claims data released weekly.

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 Crude Oil Futures (NYMEX: CLJ2) and Zinc Futures (LME: CMZNH22) for the next 1-2 weeks:                 

Crude Oil Futures Contract (NYMEX: CLJ2)

Price Action and Technical Indicator Analysis:

On the weekly chart, NYMEX Crude Oil prices are getting resistance to the upward sloping trend line and the prices are sustaining below the line from the past several weeks. Prices are continuously getting selling pressure from the resistance levels that further indicates bearish movement in the coming period. There is an RSI negative divergence with the price that further indicates that commodity prices might correct in the coming sessions. Further, RSI (14-period) is trading at the overbought zone at ~75.12 level, which indicates profit booking might occur at key resistance levels in the coming period. Now the next crucial support levels appear to be at USD 87.07 and USD 84.96 and the 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 Crude Oil April Futures (CLJ2) is looking technically well-placed for a ‘Sell’ rating. Investment decisions should be made depending on an investors’ appetite for upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered. The technical summary of our ‘Sell’ recommendations is as follows:

Zinc Futures (LME: CMZNH22)

Price Action and Technical Indicator Analysis:

On the weekly chart, Zinc prices are getting resistance of downward sloping trend line and the prices are also sustaining below the same from past five weeks. However, the prices are trading above the trend-following indicators 21-period and 50-period SMA, acting as an immediate support level. RSI (14-period) is trading at ~61.65 level, indicating positive momentum. Zinc has witnessed a drastic increase in volumes with a decrease in prices from higher levels that further indicates bearish potential in the commodity. Now the next crucial support level appears to be at USD 3350, 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 Zinc March Futures (CMZNH22) is looking technically well-placed for a ‘Sell’ rating. Investment decisions should be made depending on an investors’ appetite for 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 ‘Sell’ 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 February 16, 2022 (Chicago, IL, USA 04.10 AM (GMT -6). 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.