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Global Commodity Technical Analysis Report

Rising Dollar Dampens Commodity Outlook, 2 Commodities in a Sell Zone – Natural Gas, Silver

Sep 29, 2021

Global Commodity Market Wrap-Up

Last week, commodity segment witnessed range bound movement majorly impacted from the rising Dollar index prices which rose to 10-months high. Besides, commodity basket might feel the heat of the recent the Fed meeting outcome. Notably, Fed recently kept the interest rate unchanged and indicated reduction in asset purchases from November onwards that might support the stock markets and pressurize the commodity prices especially precious metals and base metals.

Precious metal prices were trying to consolidate after a sharp decline. Last week, gold prices settled on a flatter note with 0.02% gain over the prior week while silver also managed to give positive weekly closing and settled at 0.43%. Base metal prices got mixed weekly closing last week with Copper and Zinc prices witnessed a gain of ~0.37% and ~1.44% respectively while Lead prices declined by ~0.65% on a weekly basis. The energy sector witnessed good upside momentum as Crude oil prices surged by 3.01% while Natural Gas prices settled with 1.05% gains.

The agricultural commodities witnessing lack of price volatility and settled in mixed tone. Notably, Corn and Soybean price settled at -0.09% and 0.08% respectively last week.     

In the current week, most of the commodities witnessed lack of movement and traded in a narrow range except the Energy sector which is witnessing good price volatility. Natural gas prices soared this week with more than 20% upside in the past 2 days. Natural gas prices are now trading at an extreme overbought region and might correct from the current levels. Crude oil is also witnessing some correction from the higher side but the overall outlook still looks bright due to the supply constraints and decent demand from China.

The upcoming macro events that may impact the market sentiments include an update on US Final GDP (Third Estimate) Quarterly Data, US Unemployment Claims, Natural Gas Inventory, and Core PCE Price Index 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 Natural Gas Futures (NYMEX: NGX21) and Silver Futures (COMEX: SIZ1) for the next 1-2 weeks’ duration:

Natural Gas November Futures Contract (NYMEX: NGX21)

Price Action and Technical Indicator Analysis:

On the weekly chart, NYMEX Natural Gas price witnessed a robust rally from the low of USD 3.734 to a high of USD 6.28 tested on 28 September 2021. Currently, prices are facing resistance of the rising trend line at USD 6.15 and prices are sustaining below the trend line resistance level. Moreover, the momentum oscillator RSI (14-period) is trading in an overbought zone at (~72.53 level) and formed negative divergence, which might indicate the possibility of a downside correction from the higher levels. However, the prices are trading above the trend-following indicators 21-period SMA and 50-period SMA which may act as a crucial support level for the prices. Now the next crucial support level appears to be at USD 5.10, and prices may test that level in the coming sessions (1-2 weeks).

 

US Natural Gas Inventory vs. NYMEX Natural Gas Prices

As per the weekly data released by the US Energy Information Administration on September 23, 2021, working gas in underground storage stands at 3,082 billion cubic feet (Bcf) compared to 3,006 Bcf in the prior week, a rise of 76 Bcf for the week ending September 16, 2021. The storage is down by 7.4 percent on a YTD basis. The following chart represents a comparative analysis of US Natural Gas storage and price action for the past 6 months.               

US Natural Gas Inventory versus Prices

As per the above-mentioned price action and technical indicators analysis, we can conclude that Natural Gas November Futures (NGX21) 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. Technical summary of our ‘Sell’ recommendation is as follows:

Silver December Futures (COMEX: SIZ1)

Price Action and Technical Indicator Analysis:

On the weekly chart, COMEX Silver price witnessed a breakout of an upward sloping trend line support at USD 22.85 level on September 17, 2021, and continuously facing resistance of the same. Moreover, the prices are trading below the trend-following indicators 21-period SMA and 50-period SMA, indicating a bearish trend. The leading indicator RSI (14-period) is trading at ~34.95 level. Now the next crucial support level appears to be at USD 21, 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 COMEX Silver December Futures (SIZ1) 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 ‘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 recommendation(s), the Entry Price is assumed to be at a certain level with a slight deviation on either side. A slight deviation (Example 1.0%-1.5%) on either side in the ‘Entry Price’ can be considered depending upon the upside or downside potential expected and also taking into consideration the Target 1 levels and Stop-loss levels.

Note 1: Investors can consider exiting from the stock 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 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 where-in 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: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Risk Reward Ratio: 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 September 29, 2021 (Chicago, IL, USA 03.30 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.