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Global Commodity Technical Analysis Report

Recession Fears Pulled Commodities Prices Lower, One Commodity in a Buy Territory – Copper

Jul 20, 2022

Global Commodity Market Wrap-Up

Last week, commodities prices continued to trade in a southward trend owing to the increasing US dollar index and the recession fears that impact the overall demand for commodities. Gold prices traded in a medium-term weak trend and settled with a weekly loss of 2.19%, while silver prices also settled at a weekly loss of 3.23%. Base metals also traded in bearish momentum. Notably, Copper prices have witnessed a weekly decline of 7.88%, while Zinc prices tanked heavily and settled with a weekly loss of 5.39%.

On the Energy front, Crude oil prices settled at a weekly decline of 6.87%. However, Natural gas prices improved last week and settled at a weekly gain of 16.27%. Agricultural commodities prices declined last week tracking crude oil prices. Notably, Soybean and Corn prices witnessed a 3.12% and 4.58% weekly loss, respectively. Also, Lumber prices tanked last week and settled at a weekly loss of 8.23%.

In the recent week, primarily all the commodities prices are showing some rebound from lower levels after a major crash in the last week. The precious metals prices are showing some respite from lower levels after the US dollar index prices ease in the existing week. Base metals are also trying to pick some upside traction from lower levels after a sharp sell-off last week, especially copper which just gave an upside breakout. On the energy front, Crude oil and natural gas prices are showing strength this week due to the overall energy shortage worldwide. However, the agricultural commodities basket is showing some correction from higher levels.

The upcoming macroeconomic events that may impact the market sentiments include an update on Existing Home Sales, Philly Fed Manufacturing Index and Unemployment Insurance Claims released weekly.

Having understood the global commodities performance over the past one week, taking cues from major global economic events, and based on technical analysis, noted below is recommendation with the generic insights, entry price, target prices, and stop-loss for Copper August Futures (LME: CMCUQ22) for the next 1-2 weeks’ duration:

Copper August Futures Contract (LME: CMCUQ22)

Price Action and Technical Indicator Analysis:

LME Copper August Futures' prices recently broke a downward sloping trend line by an upside and are sustaining above the breakout level from the past two days. There is a positive RSI divergence with the price clearly visible on a daily chart that further support positive stance. The leading indicator RSI (14-period) is trading at the oversold region at ~27.66 levels, which indicates profit booking might occur from key supporting levels in the coming sessions. Now the next crucial resistance levels appear to be at USD 7672.00 and USD 7948.00, and prices may test these levels in the coming sessions (1-2 weeks).

LME Copper Warehouse Inventory (MCU-STOCKS) Vs LME Copper August Futures Contract Price (CMCUQ22)

Copper inventories in LME Warehouses have declined slightly from May 2022 onwards after the inventories rebound to 180,925 tons in May 2022 from lower levels of 69,600 tons made in the first week of March 2021 that depressed the copper prices in recent times. Notably, Copper inventory data stood at 135,575 tons on 19th July 2022. Now, the copper stocks are declining in LME warehouses which might support the copper prices in the coming weeks.

As per the above-mentioned price action and technical indicators analysis, Copper August Futures (CMCUQ22) is looking technically well-placed for a ‘Buy’ rating. Investment decision should be made depending on an individual’s appetite for upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report. Technical summary of ‘Buy’ 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 

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 Individuals 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.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: Individuals 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 3: 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 at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

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

Stop-loss: In general, it is a level to protect further losses in case of unfavourable movement in the stock prices. 

Risk Reward Ratio: The risk reward ratio is the difference between an entry point to a stop loss and profit level. This report is based on ~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 July 20, 2022 (Chicago, IL, USA 12.37 AM (GMT -5). The reference data in this report has been partly sourced from REFINITIV. 

Note: Trading decisions require a thorough analysis by individuals. Technical reports in general chart out metrics that may be assessed by individuals 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.