Global Commodity Market Wrap-Up

Last week, commodity prices have strengthened as all the segments rebounded from lower levels. Major influencing factors that drove the commodity prices are the weakening of the US dollar along with the spur in demand of industrial metals as well as crude oil prices. The fact that no new cases of COVID-19 were found in China was an encouraging sign. Meanwhile, Yellow metal and Silver prices witnessed sharp recovery from lower levels, after no clear guidance was provided by the US Federal Reserve Chair Powell over the timeline for trimming the economic support in the Jackson Hole economic conference.

Base metals like Copper and Lead witnessed a weekly gain of ~4.12% and ~2.52% respectively. On the Energy front, Crude oil and Natural Gas prices witnessed sharp gains of 10.62% and 13.50% respectively. Meanwhile, all eyes are on the upcoming OPEC-JMMC meetings outcome as well as Crude oil and Natural gas inventory data. The agricultural commodities also settled in a positive zone as Soybean, sugar and Corn prices moved up.      

In the existing week, commodities are trading in a mixed tone. Gold and Silver prices are trading in a weak tone while Base metals continued its bull run. Crude Oil and Natural Gas prices are trading in an upward trajectory this week. Considering the agricultural sector, Soybean, Corn and Sugar prices are showing negative movement after prices rebounded from the key levels.

The upcoming macro events that may impact the market sentiments include an update on ADP Non-Farm Employment Change, US Unemployment Claims, Natural Gas Storage, and US Unemployment Rate 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 October Futures (NYMEX: NGV21) and Nickel September Futures (LME: CMNIU21) for the next 1-2 weeks’ duration:

Natural Gas October Futures Contract (NYMEX: NGV21)

Price Action and Technical Indicator Analysis:

On the weekly chart, NYMEX Natural gas price broke an upward sloping trend line resistance at USD 3.75 level on July 20, 2021. Since the breakout, prices are sustaining above the upward sloping trend line. Currently, price is trading in a higher top and higher bottom formation. 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 ~75.45 level. Now the next crucial resistance level appears to be at USD 5.05, 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 August 26, 2021, working gas in underground storage stood at 2,851 billion cubic feet (Bcf) compared to 2,822 Bcf in the prior week, a rise of 29 Bcf for the week ending August 20, 2021. The storage is down by 14.3 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 chart analysis, the working gas in underground storage has been increasing continuously with rise of over 369 bcf compared to July 24, 2021, followed by rise in Natural gas prices.

As per the above-mentioned price action and technical indicators analysis, we can conclude that Natural Gas October Futures (NGV21) 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:

 

LME Nickel September Futures (LME: CMNIU21)

Price Action and Technical Indicator Analysis:

On the weekly chart, LME Nickel price witnessed a breakout of the downward sloping trend line resistance at USD 19470 level on August 31, 2021. Moreover, prices are trading above the rising trend line support level at USD 18496 and continuously taking support of it. Moreover, the prices are trading above the trend-following indicators 21-period SMA and 50-period SMA, indicating a positive trend. The leading indicator RSI (14-period) is trading at ~59.30 indicating bullish momentum. Now the next crucial resistance level appears to be at USD 20450, 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 LME Nickel September Futures (CMNIU21) 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 01, 2021 (Chicago, IL, USA 03.08 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.