Global Commodity Market Wrap-Up

Last week, Commodity prices showed good signs of recovery and tried to break the existing trading range. Precious metals prices slightly pushed upwards after the rising COVID cases worldwide. Yellow metal prices usually move northwards with increasing uncertainties in the market. Base metals were supported from lower levels especially Copper and Zinc which were trading in a consolidated range due to weak Chinese demand as well as slower manufacturing growth data.  

Agricultural commodities traded in a mixed zone as Sugar and Corn prices dropped slightly while Soybean prices settled in green. Upcoming WASDE report scheduled on 12^th July 2021 might provide some volatility in the agricultural commodity segment. On the Energy front, Natural gas showed some downside correction which took the prices to the lucrative levels for buying. Natural gas settled last week with 3.17% weekly loss while Crude oil prices supported commodity index with weekly gains of 2.61%.

In the current week, precious metals and agricultural segment is showing positive price trend while Energy and Base metals showcased mixed price reactions. Considering the current scenario, we suggest a Bullish Stance on Precious metals especially Silver as well as Natural gas as both the commodities have moved significantly on technical grounds.   

The upcoming macro events that may impact the market sentiments include an update on ADP Non-Farm Employment Change data, Natural Gas Inventories, US Unemployment Claims, US Unemployment rate, and JOLTS Job Openings data 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 Silver Futures (COMEX: SIU1) and Natural Gas Futures (NYMEX: NGU21) for the next 1-2 weeks’ duration:

Silver September Futures Contract (COMEX: SIU1)

Price Action and Technical Indicator Analysis:

On the daily chart, COMEX Silver price broke the downward sloping trend line resistance at USD 25.51 level on July 07, 2021. Since the breakout, prices are sustaining above the downward sloping trend line. Moreover, prices are trading above the trend-following indicator 21-period SMA, signaling a bullish trend. The leading indicator RSI (14-period) is trading at ~49.77 level. Now the next crucial resistance level appears to be at USD 26.55, 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 Silver September Futures (SIU1) 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:

NYMEX Natural Gas September Futures (NYMEX: NGU21)

Price Action and Technical Indicator Analysis:

NYMEX Natural Gas Futures is trading in an upward sloping channel and the prices have recently taken support from the lower band of the rising channel. Prices are picking the upside momentum with good volumes further indicates active buying participation in the commodity. Moreover, the prices are trading above the trend-following indicators 21-period and 50-period SMA, indicating our bullish stance. The leading indicator RSI (14-period) is trading at ~66.71 level further indicating that the prices are trading in a bullish momentum. Now the next crucial resistance level appears to be at USD 4.26, 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 July 29, 2021, working gas in underground storage stands at 2,714 billion cubic feet (Bcf) compared to 2,678 Bcf in the prior week, a rise of 36 Bcf for the week ending July 23, 2021. The storage is down by 18.4 percent on a YTD basis. The following chart represents a comparative analysis of US Natural Gas storage and price action for the past 9 months.

US Natural Gas Inventory versus Prices

As per the above chart analysis, the working gas in underground storage has been increasing continuously with rise of over 156 bcf compared to July 01, 2021, followed by rise in Natural gas prices. 

As per the above-mentioned price action and technical indicators analysis, we can conclude that NYMEX Natural Gas September Futures (NGU21) 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 August 04, 2021 (Chicago, IL, USA 02.50 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

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.