Global Commodity Market Wrap-Up

Last week, commodities prices tumbled amid a strong rally in the US dollar index. Gold prices maintained its bearish movement and settled with a weekly loss of 1.64%, while silver prices also settled at a weekly loss of 2.36%. Base metals also witnessed selling pressure due to lack of demand as recession fears mounted. Notably, Lead and Zinc prices have witnessed a weekly decline of 4.63% and 5.03%, respectively, while Copper prices also settled with a weekly loss of 3.83%.

On the energy front, Crude oil prices continued its weak momentum and settled at a weekly loss of 5.94%, while natural gas prices also witnessed sharp selling and settled at a weekly loss of 10.49%. Meanwhile, Agricultural commodities prices were also settled in negative territory mirroring crude oil prices.

Most of the commodities are trading in a negative tone this week due to concerns about the recession. The prices of precious metals are showing weak momentum amid rising US dollar index. Base metals are also trading in a weak tone due to a lack of demand. On the energy front, Crude oil is trading in a range with a weak bias, while Natural gas prices are trading in negative territory technically. The agricultural commodities basket is trading with negative momentum in the existing week.

The upcoming macroeconomic events that may impact the market sentiments include an update on US Pending Home Sales, Unemployment Insurance Claims, and 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 technical analysis, noted below are the recommendations with the generic insights, entry price, target prices, and stop-loss for Zinc October Futures (LME: CMZNV22) and Lumber November Futures (CME: LBX2) for the next 1-2 weeks duration:

Zinc October Futures (LME: CMZNV22) 

Price Action and Technical Indicator Analysis:

LME Zinc October Futures' prices broke a rising trendline on the downside and are trading below the breakdown levels. Also, the prices took the resistance of the 21-Period and 50-Period SMA on the higher levels, indicating the possibility of a downtrend. The leading indicator RSI (14-period) is moving near the midpoint and showing a reading of ~37.31 levels, which indicates weakness in the prices for the downside momentum. 

Now the next crucial support levels appear to be at USD 2650.00 and USD 2600.00, and prices may test these levels in the coming sessions (1-2 weeks). 

As per the above-mentioned price action and technical indicators analysis, Zinc October Futures (LME: CMZNV22) is looking technically well-placed for a ‘Sell’ 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 ‘Sell’ recommendation is as follows:

Lumber November Futures (CME: LBX2) 

Price Action and Technical Indicator Analysis:

CME Lumber November Futures' prices are taking support of the downward sloping trendline and are trading above the trendline support. The leading indicator RSI (14-period) is recovering from the oversold zone and showing a reading of ~37.64 levels, which indicates the further possibility of upside momentum. The prices are trading below the 21-period and 50-Period SMA on a daily chart which may act as a resistance level in the near term.

Now the next crucial resistance levels appear to be at USD 470.00 and USD 490.00, and prices may test these levels in the coming sessions (1-2 weeks). 

As per the above-mentioned price action and technical indicators analysis, Lumber November Futures (CME: LBX2) 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 a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock. 

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock. 

Stop-loss: 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 September 28, 2022 (Chicago, IL, USA 3.28 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.

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