Global Commodity Market Wrap-Up

Last week, the Commodity Basket maintained its primary bullish trend except some base metals which traded in a range. The recent fall in dollar index prices, Ukraine-Russia war woes, and continuous weakness in the Global markets kept the overall commodity prices at the higher end. Precious metals including gold showed some strength from the key support levels of $1780. Gold is usually considered as a safe haven to counter inflationary risks and any probable war concerns. Notably, Gold prices settled at a 1.22% weekly gain while silver prices settled at a weekly gain of 0.78%. Base metals are currently hovering in a range especially copper prices are trading in a short range from the past several weeks. Nickel and Aluminum are among the trending themes. Notably, Lead and Zinc prices witnessed the weekly decline of 3.54% and 0.43% respectively while copper also traded in a range with the weekly gain of 3.31%.

On the Energy front, Crude oil prices continued to surge with its seventh consecutive rally over the fear that Permian oil and gas basin based in North America may freeze due to unbearable winter season. Crude oil settled at a weekly gain of 6.32%. Natural gas prices took some correction from higher levels and came at its good support level technically. Notably, Natural gas inventories are declining sharply mainly due to heavy demand globally amid supply shortages in the European countries. Natural Gas settled at a weekly loss of 1.44%. Agricultural commodity prices are mostly trading in a range with a positive bias. Meanwhile, Sugar and Soybean prices settled at 0.16% and 5.68% weekly gains respectively while Corn prices settled at a weekly loss of 2.44%.

In the recent week, most of the commodity prices are trading in a mixed tone except Precious metals which are getting support of the inflationary pressure and rising concerns of Russian invasion on Ukraine. On the energy front, Crude Oil and Natural gas are showing some correction after a robust rally in prices while Agricultural commodities are getting upside momentum from lower levels.

The upcoming macro events that may impact the market sentiments include an update on US 10-Y Bond Auction, US Consumer Price Index, Unemployment Claims, and US Natural Gas Inventory 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 Natural Gas Futures (NYMEX: NGJ22) and Lumber Futures (CME: LBH2) for the next 1-2 weeks:         

Natural Gas Futures Contract (NYMEX: NGJ22)

Price Action and Technical Indicator Analysis:

On the weekly chart, NYMEX Natural Gas price broke the downward sloping trend line in the last week of January 2022 and the prices are sustaining above the breakout line from the past three weeks. Moreover, the prices are trading above the trend-following indicator 21-period and 50-period SMA, indicating positive momentum. Further, RSI (14-period) is trading at ~57.02 level, indicating bullish momentum. Now the next crucial resistance levels appear to be at USD 4.47 and USD 4.80 and the prices may test that levels 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 February 03, 2022, working gas in underground storage stood at 2,323 billion cubic feet (Bcf) compared to 2,591 Bcf in the prior week, a decline of 268 Bcf for the week ending January 28, 2022. The storage is down by 27.3 percent on a YTD basis. The following chart represents a comparative analysis of the US Natural Gas storage and price action for the past 1 year.               

US Natural Gas Inventory versus Prices

As per the above-mentioned price action and technical indicators analysis, we can conclude that Natural Gas April Futures (NGJ22) is looking technically well-placed for a ‘Buy’ rating. Investment decision 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. Technical summary of our ‘Buy’ recommendations is as follows:

Lumber Futures (CME: LBH2)

Price Action and Technical Indicator Analysis:

On the daily chart, Lumber price broke the downward sloping trend line by an upside and the prices are also sustaining above the same from past one day. Moreover, the prices are trading above the trend-following indicators 21-period and 50-period SMA, further supporting the bullish stance. RSI (14-period) is trading at ~57.63 level, indicating positive momentum. Now the next crucial resistance level appears to be at USD 1233.70, 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 Lumber March Futures (LBH2) is looking technically well-placed for a ‘Buy’ rating. Investment decision 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 ‘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 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 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 February 09, 2022 (Chicago, IL, USA 02.57 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

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.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.