Global Commodity Market Wrap-Up

Last week, overall commodities encountered mixed trends as precious metals and base metals consolidated with a positive bias. However, Agricultural commodities witnessed sharp decline in prices last week with Corn and Sugar prices down by 10.56% and 4.79% respectively. Energy sector commodities took sharp downside correction, although managed to close marginally down as Crude oil settled at 0.74% loss and Natural gas slipped by 0.30%. An uncertain environment over increasing new COVID-Delta virus cases and low vaccination drive in some countries weighed on the commodity prices. Besides, slowing growth in China might raise concerns over certain commodities especially industrial base metals.  

Existing week was no recluse, with Precious and Base metals like Gold, Silver and Copper prices showing negative signs. However, Crude oil and Natural gas prices recovered from sharp selloff last week although consensus on increase in crude oil output among Crude oil producing nations in OPEC-JMMC Meetings was not reached. On Agri front, Soybean and Soybean oil currently witnessed an upward movement getting support from rising Crude oil prices. Post heavy selling last week, Corn too witnessed some upside reaction. Meanwhile, as US Dollar Index recoiled to its 3-month high levels, it might adversely affect commodity prices in the short-to-medium term. The upcoming macro events that may impact the market sentiments include an update on Crude Oil Inventory, FED Chair Powell Testifies, Chinese GDP Numbers q/q and Unemployment Claims 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 Aluminum September Futures (LME: CMALU21) and Soybean Oil August Futures (CBOT: BOQ1) for the next 1-2 weeks’ duration:

Aluminum September Futures Contract (LME: CMALU21)

Price Action and Technical Indicator Analysis:

LME Aluminium Futures are continuously sustaining above an upward trend line. The aluminium price broke out the downward sloping trend line resistance at USD 2490 level on June 29, 2021. Since the breakout, prices are trading above the downward sloping trend line. Currently, price is trading in an upward trajectory, forming a series of higher tops and higher bottoms, which appear to be a bullish run.

Moreover, the prices are trading above the trend-following indicators 21-period SMA and 50-period SMA and the leading indicator RSI (14-period) is trading at ~64 level, which indicates positive momentum in the price. Now the next crucial resistance level appears to be at USD 2650, and prices may test that level in the coming sessions (1-2 weeks).

LME Aluminum Warehouse Inventory (MAL-STOCKS) Vs LME Aluminum Continuous Price (CMALc1)

Source: REFINITIV, Analysis by Kalkine Group

Aluminum inventories in Warehouse have declined sharply in the past five months starting Mid-March 2021 which led to increase in overall aluminum prices. Notably, Aluminum inventories data stood at 1.48 million tons on 12^th July 2021 in LME Warehouses.

As per the above-mentioned price action and technical indicators analysis, we can conclude that Aluminum September Futures (CMALU21) 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:

CBOT Soybean Oil August Futures (CBOT: BOQ1)

Price Action and Technical Indicator Analysis:

CBOT Soybean Oil Futures prices are trading in a rising wedge formation for the past 2 months and facing the resistance of an upper band of the wedge pattern on the daily chart. Prices also broke an upward sloping trend line support, and now sustaining below the rising trend line support zone. However, the prices are trading above the trend-following indicator 21-period SMA. The momentum oscillator RSI (14-Period) is trading at ~59.36 level. Now the next crucial support level appears to be at USc 62, 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 CBOT Soybean Oil August Futures (BOQ1) 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 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 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 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 July 14, 2021 (Chicago, IL, USA 03.20 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.