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Global Commodity Technical Analysis Report

Rising Dollar Index Constrained Commodity Basket, 2 Commodities in a Buy Zone– Natural Gas, Lumber

Sep 22, 2021

Global Commodity Market Wrap-Up

Last week, most of the commodity segment witnessed negative price momentum primarily influenced by Dollar index prices which rose sharply last week. Precious and base metal prices felt the pressure. Also, the recent default concerns over Evergrande (China’s second biggest real estate group) raised concerns over the demand of base metals.

Base metals prices gave negative weekly closing last week with Copper and Lead prices witnessed losses of ~3.93% and ~6.31% respectively. On the Energy front, Crude oil prices witnessed modest gains of 3.38% while Natural Gas prices settled at 3.48% gains last week. Notably, Natural gas prices once again took good support technically from the crucial levels and are trying to reach its recent highs.

Agricultural commodities traded in a range bound movement with positive bias as Corn and Soybean price settled at -0.19% and 1.88% respectively last week.     

In the existing week, only precious metals are trying to recover from key levels while base metals, energy and agricultural segment were trading with weak bias. Now, all eyes are on the upcoming Fed Meeting Minutes outcome which will take place on 22nd September 2021, which may increase the price volatility in commodity segment.   

The upcoming macro events that may impact the market sentiments include an update on FOMC Statement, US Unemployment Claims, Natural Gas Inventory, 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 Natural Gas Futures (NYMEX: NGX21) and Lumber Futures (CME: LBX1) for the next 1-2 weeks’ duration:

Natural Gas November Futures Contract (NYMEX: NGX21)

Price Action and Technical Indicator Analysis:

On the daily chart, NYMEX Natural gas price broke out the rising channel pattern at USD 4.63 level on September 01, 2021. Since the breakout, prices are sustaining above the upward sloping channel pattern. Moreover, the prices are trading above the trend-following indicators 21-period SMA and 50-period SMA, indicating a bullish trend. The leading indicator RSI (14-period) is trading at ~55.89 level indicating bullish momentum in the commodity. Now the next crucial resistance level appears to be at USD 5.25, 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 10, 2021, working gas in underground storage stands at 3,006 billion cubic feet (Bcf) compared to 2,923 Bcf in the prior week, a rise of 83 Bcf for the week ending September 03, 2021. The storage is down by 9.7 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 ‘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:

Lumber November Futures (CME: LBX1)

Price Action and Technical Indicator Analysis:

CME Lumber Futures is trading above the horizontal trend line support level at USD 485.40 and continuously taking support of the same. Now, the prices are consolidating at lower levels and moving up gradually. The leading indicator RSI (14-period) is trading at ~45.05 level. However, the prices are trading below the trend-following indicators 21-period SMA and 50-period SMA, which may act as a resistance zone. Now the next crucial resistance level appears to be at USD 699, 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 CME Lumber November Futures (LBX1) 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. The summary of our ‘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 

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 22, 2021 (Chicago, IL, USA 03.00 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.