Newsletter 082415 Final Volume 1 Issue 9
0 likes110 views
The FOMC minutes revealed disagreement among members about whether to raise rates in September. This uncertainty is causing volatility in markets. While some signals point to a rate hike, others suggest the Fed may pause due to concerns over a slowing Chinese economy and its potential impact on the US. Commodities have continued declining, suggesting weakness in the global economy. The Fed faces challenges in responding to economic troubles abroad while the US risks being impacted as well.
Newsletter 082415 Final Volume 1 Issue 9
- 1. See important disclosures on last page 1 www.eqstrading.com SIGNALS Are they doves or hawks? The FOMC minutes were released Wednesday and we still do not get a clear picture of where rates are going. The minutes we got last week are split and you can feel lines in the sand draw- ing as some members are fighting for an increase and some still want to stay the course and keep rates near the zero peg. One thing to keep in mind is that Fed meet- ing took place before the yuan devaluation rocked world as we reported last week in “Signals.” A line from the report stating: "several participants noted that a material slow-down in Chinese economic activity could pose risks to the U.S. economic out- look" which caused the markets to take it as if the Fed was already consider- ing a Chinese slowdown then the devaluation would be a major debating point for the next meet- ing and could cause the Fed to pause on a September hike. The troubling problem is that the “market” had been “rewarding” a delay in a rate hike with in- creases in the equity market. However after the FOMC notes were released it looks like the hike may not occur in September and bonds, equites and com- modities all took a massive beat- ing. The curve is still pricing in a rate hike in September, but the probability fell from the last report, however most economists still tend to think that the Fed will lift off in September, but the line is fairly well split. After the minutes, the dollar lost ground which would typically give some support to oil and the commodity sector; however the bears just beat down everything in the market but gold Wednesday, Thursday, and Friday. It would seem that the Fed just can’t win. We talk about it every week, uncertainty drives fear, and fear drives volatility. As traders we love volatility as long as we are on the right side of it, but the fear is that the Fed is handcuffed. China (all of Asia for that mat- ter), Europe, and counties that depend on oil all have the flu, and it is spreading. (continued on Page 2) Why The Fed Can’t Win Since our short call on 7/13, WTI position has gained 29%! **You can achieve these results with discipline and by following the EQS daily trade recommendations and using the daily EQS Stop Loss guidance I N S I D E T H I S I S S U E : The Fed Continued 2 Natural Gas 3 Oil and Products 4 About EQS 5 Terms and Disclosures 6 EQS TR A D E RE C O M M E N DA T I O N S THE SOUR C E F OR C OM M OD ITY TR AD ING SIGN ALS Volume 1, Issue 9 August 24. 2015 A Weekly Publication on the Commodity Markets TM Commodity Symbol Position Entry Date Entry Price Stoploss Current Position Profit (Loss) Rolling 1-Year Annual Return Rolling 5-Year Annual Return Rolling 10-Year Annual Return Average Volatility Sharpe Ratio Max Draw Down WTI Crude Oil CLV15 Short 7/13/2015 52.78$ 2.40% 28.64% 41.61% 33.16% 35.44% 11.1% 3.92 -31.00% Brent Crude Oil EBV15 Short 7/13/2015 58.61$ 1.70% 24.38% 56.84% 34.20% 44.28% 44.0% 1.30 -30.44% Ultra-Low Sulfur Diesel HOV15 Short 7/13/2015 1.7360$ 1.60% 21.63% 62.07% 24.32% 33.84% 24.0% 1.51 -30.42% Gasoline RBV15 Short 7/13/2015 2.0451$ 2.45% 29.44% 42.50% 29.85% 52.37% 38.6% 1.74 -31.34% Natural Gas NGV15 Short 8/17/2015 2.801$ 1.10% 4.93% 34.71% 61.90% 89.91% 116.1% 1.30 -38.24% This performance is simulated using corresponding stop loss recommendations. Refer to important disclosures on the EQS Trading website. No leverage utilized on these results.
- 2. See important disclosures on last page 2 www.eqstrading.com (Continued from page 1) Because the Fed is running out of tools to fight the flu, the fear is that no matter what happens with monetary policy, America may catch the flu. The “Signals” cover story on July 27th asked the question, “Are Commodities Pointing to a Global Recession?” As we discussed in the feature article, a commodities melt- down is the first symptom of the flu. Liquidity-driven markets love low interest rates and massive money creation. But low rates cause imbalances (the argument to raise rates), and the bang for each dollar of newly-printed or borrowed currency falls to zero and then turns negative. What’s happening now as the major economies continue to borrow but can’t seem to turn the proceeds into measurable growth. The world is running epic deficits and monetizing the whole thing, but as a whole the world is not getting the bang for each dollar in returned growth. Basically debt to GDP is soaring at an ac- celerating rate and it is starting to correct. As we pointed out back in July, com- modities can be precursors of slowdowns. Oil is a high fixed cost industry, once rigs are pumping it is more eco- nomical for pro- ducers to keep pumping and as global economies slow, demand slows, we get supply glut, and prices fall. We are starting to see the slow down we reported on in July hit the more broad market as fear is hitting the market that the it is not a matter of the Fed not raising rates, but a mat- ter that the Fed doesn’t have the needed tools to fight the flu. In the grand scheme of things a quarter or eighth of a point likely does not really mat- ter, but what matters is the Fed’s credibility. The United States led the world into re- cession in 2007, the question now is does the Fed have the medicine to get the world out of what lies ahead? WHY THE FED CAN’T WIN...(CONT.) Liquidity-driven markets love low interest rates and massive money creation. But low rates cause imbalances….
- 3. See important disclosures on last page 3 www.eqstrading.com Well, summer did not come to the rescue for natural gas this year and the bears are becoming more ag- gressive after this week’s technical support failure (see chart). Strong production has been the major force keeping prices low. According to the U.S. Energy Information Administra- tion’s Short Term Energy Outlook, U.S. producers hit a total marketed natural gas production of 78.3 billion cubic feet per day in July, a jump of about 4.4 percent year over year. The EIA estimates that could grow to 81.4 billion cubic feet by Dec. 2016. Much of that production has been headed into storage and by early November, the EIA estimates storage will reach 3.87 trillion cubic feet, the second high- est level on record. On the other hand, demand has been impressive and this supply could be draw down if natural gas demand in the power sector hits an all-time record in 2015. The increase in demand has been driven by warm summer weather as well as power producers abandoning coal for cheap, and relatively cleaner natural gas. Another demand spike tradi- tionally comes during the colder winter months. Prices could see a slight boost as the long-awaited new U.S. LNG facilities commence operation. Cheniere Energy is set to bring online its Sabine Pass liquefied natural gas export facility later this year, and more LNG export facilities are in the works. Analysts forecast that LNG exports are expected to average 700 mmcf/day in 2016, reaching 8 Bcf/day by 2020. Exports to Mexico have also risen by about 700 million cubic feet year over year. It’s hard to believe these LNG export facili- ties are about to com- mence when back in the early 2000s, there was fear that the US was running out of natural gas! In response, the US had dozens of LNG import facilities under evaluation as compa- nies rushed to bring in natural gas from other countries. By 2010, total US LNG import capacity reached almost 15 bcf/day, around one- fifth of the US total gas demand that year. Im- ports of LNG peaked around 2007, and then the shale natural gas revolution began. As mentioned in previ- ous issues of Signals, keep watch on a settle above $2.95/mmbtu, which is a key resistance level. Also look for a reflection point sometime in September as it is the month where the most instances of yearly lows in NG spot prices occur. Until then, losses could accelerate as the bears are becoming more aggressive. WHERE DID SUMMER GO? Natural Gas Bearish NG Weekly Support Failure Unlike today, back in the early 2000’s, there was fear of the US running out of natural gas!. This spurred an onset of proposed LNG import projects (see FERC caption from 2006). Now we have so much that natural gas is flared and LNG export projects are commencing soon... Flashback to 2006: LNG Import Facilities
- 4. See important disclosures on last page 4 www.eqstrading.com $30...drink that in. It was not too long ago (in July) that EQS initiated its short position at just over $52. We were then talking about $50, then $40, and on Friday intraday prices dipped under $40 to trade with a $3 handle. This makes eight consecu- tive weekly losses for crude, the longest losing streak since 1986. Oil is getting hit in every direction. Inventories at record highs, rig counts still increasing and now global economic fears as a sharp drop in Chinese manufacturing increased worries over the health of the world's biggest ener- gy consumer. Activity in China's factory sector shrank at its fastest pace in almost 6-1/2 years in August as domestic and export demand dwindled, adding to worries about lower consumption of crude as the second-biggest oil user. WTI broke through its major support level that can be traced back to 1999 (see attached chart) and appears to be headed towards the lows reached in the height of the 2008 financial crisis. This particular chart plots the WTI crude oil 12-month strip and it reveals the support level was actually broken late last year only to become major re- sistance in 2015. As seen, the rebound in oil earlier this year failed to breach the resistance MAKE THAT EIGHT DOWN WEEKS... Bearish Oil & Refined Products line and then fell to new yearly lows thereafter. Not even a weaker dollar could rescue the de- cline in crude this past week. The DXY (an in- dex of the value of the US dollar relative to a basket of foreign currencies) declined after the FOMC minutes revealed that the Fed may not be ready to proceed with a rate hike in Septem- ber. Since the minutes, the DXY declined which sent gold prices on an upward tear. But black gold began to decouple from its relationship with the dollar and continued heading south. The main reason for black gold’s behavior is that a strong global economy translates into strong industrial oil demand and when the Fed hinted it may not hike rates in September, the market views this as a lack of confidence in economic growth and thus bearish for oil de- mand and price in general. Are you hungry to go long? With the DXY showing signs of vulnerability, watch for signs of sustainable produc- tion declines along with stability in the global equi- ties market. If production confirms a plateau and the global economy stabilizes in the midst of a slowing Chi- nese economy and US rate hikes, we should see signs of a reflection point in oil prices. The 12-month strip shows major support at $32.50/BBL. Crude and product inventories are at the highest level since the EIA began reporting this data back to 1990. WTI Oil Prices – 12-month Strip 1998 2009 2015 Support Becomes Resistance Next Major Support is $32.50
- 5. See important disclosures on last page 5 www.eqstrading.com Why You Need EQS From technicals to fundamentals to macroeconomics, analyzing commodity mar- kets can be a daunting task. Let EQS do the work for you. Through its subscrip- tion service, EQS Trading provides traders and hedgers easy to follow trading signals for major commodity futures markets, including crude oil, natural gas, gold, silver and many others. Now, strategies used by institutions and hedge funds are at your fingertips. The subscription service includes both daily trading signals and the weekly Signals Newsletter, which provides in-depth insight to the commodity markets. EQS Capital Management also offers a commodity hedge fund (EQS Commodi- ty Fund LLC), which employs the same signals in its subscription service in a private placement fund for accredited investors and institu- tions. Be- cause EQS uses a “long” and “short” strat- egy, it is designed to generate returns, regardless of which way the market is moving. EQS Commodity Fund imbeds strict risk management principles through diversi- fying its portfolio (energy, metals, and agriculture) and actively managing stop loss limits. What is EQS? Economic Quantitative Strategy (aka EQS) is an investment and trading strategy that translates economic data and technical indicators into price direction for commodities. Because of its quantitative nature, EQS has been rigorously back- tested with 15 years of histori- cal data to en- sure the strategy works in a variety of market condi- tions. Further- more, because the global econo- my changes over time, EQS em- ploys dynamic parameters that evolve as the market changes. About Us Who is EQS Richard C. Rhodes Mr. Richard C. Rhodes is the President and Found- er of EQS Capital Management LLC. Richard has a Bachelor of Science with honors in Mechanical Engineering from Texas A&M University and an MBA from Duke University. He brings almost 25 years of diverse energy experience, covering all phases of the oil and natural gas value chain from producer to end-user. Richard is a licensed Series 3 CTA (Commodity Trading Advisor) with the Com- modity Futures Trading Commission and a mem- ber of the National Futures Association. With close to 25 years in the energy and commodities market, Richard started his professional career on a drilling rig in West Texas with Conoco Exploration and Production. Richard continued his oil and gas career with Koch Industries (ranked as one of the largest privately-owned companies in the U.S.) where he worked in midstream, refining, pipeline, and distribution operations. During his eight years with Koch Industries, Richard began as an operations engi- neer and later found his true passion in trading, which leveraged his profes- sional interests in mathematics and economics. Richard joined Duke Energy in 2002 (the largest utility in the nation), where he spent ten years working in the energy trading department and earned The Pinnacle Award, the compa- ny’s highest honor. Richard then left Duke Energy to launch EQS Capital Management in 2012. Jonathan M. Lamb Mr. Jonathan M. Lamb is the Director of Busi- ness Development at EQS Trading. As a four year varsity hurdler on the track team at Ball State University, Jonathan earned Bachelor of Science degrees in Risk Management, Insur- ance, and Economics, and started working on his PhD in Economics at North Carolina State University before focusing on business and trading. As part of the first wave of Millennials to join the work force, Jonathan started his professional career almost 15 year ago, joining ACES Power Marketing as an Operations Specialist, providing demand side economics for Co-Op Power Providers before becoming a Real-Time Electricity Power Trader. He continued his career trading power for seven years with Progress Energy (now Duke Ener- gy, the largest utility in the nation) as a Senior Real Time Trader. Jonathan then opted to become an entrepreneur and started a consulting firm specializ- ing in finance and economics, owning and running seven different small busi- nesses before joining EQS in 2015. WHAT AND WHO IS EQS?
- 6. See important disclosures on last page 6 www.eqstrading.com EQS Trading A Division of EQS Capital Management, LLC 8480 Honeycutt Road, Suite 200 Raleigh, NC 27615 Phone: 919.714.7453 www.EQStrading.com E-mail: JL@EQScapital.com Your use of this subscription is governed by these Terms and Conditions. You may print the documents published in hard copy for internal reference purposes, but not for any other purpose. Specifically, you may not copy, reproduce, distribute or modify the content. The information may be changed by EQS at any time without notice. While EQS will use reason- able efforts to ensure that the information is accurate and up to date, no representations or war- ranties are given as to the reliability, accuracy and completeness of the information. This material has been compiled and presented as general information, without specific regard to the particular circumstances or risks of any company, institution, or individual. It is not intend- ed as, nor should it be construed to be, investment advice. In no event will EQS, its affiliates, nor any of its officers, partners or employees be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of it, or in any connection with, your use of the Subscrip- tion or the failure of performance, error, omission, interruption, delay in operation or transmis- sion. Use of the Subscription Service shall be governed by all applicable Federal laws of the United States of America and the laws of the State of Delaware. The user hereby acknowledges and agrees that EQS may be harmed irreparably by any violation of this Agreement and that EQS shall be entitled to injunctive relief to enforce this Agreement. The information contained has been prepared solely for informational purposes and is not an offer to sell or purchase or a solici- tation of an offer to sell or purchase any interests or shares in funds managed by EQS. Any such offer will be made only pursuant to an offering memorandum and the documents relating thereto describing such securities. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. HYPOTHETICAL PERFORMANCE RE- SULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESEN- TATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMI- LAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPO- THETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RE- SULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HY- POTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN AD- VERSELY AFFECT ACTUAL TRADING RESULTS. THE RISK OF LOSS IN TRADING COMMODITY INTERESTS CAN BE SUBSTANTIAL. YOU SHOULD THERE- FORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FI- NANCIAL CONDITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY INTEREST TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THE REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION ("CFTC") REQUIRE THAT PROSPECTIVE CLIENTS OF A CTA RECEIVE A DISCLOSURE DOCUMENT WHEN THEY ARE SOLICITED TO ENTER INTO AN AGREEMENT WHEREBY THE CTA WILL DIRECT OR GUIDE THE CLIENT'S COMMODITY INTEREST TRADING AND THAT CERTAIN RISK FACTORS BE HIGHLIGHTED. YOU MAY REQUEST A COPY OF THE DISCLOSURE DOCUMENT BY EMAILING EQS. THE CFTC HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS TRADING PROGRAM NOR ON THE ADEQUACY OR ACCURACY OF THE DIS- CLOSURE DOCUMENT. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIG- NIFICANT ASPECTS OF THE COMMODITY MARKETS. THEREFORE, YOU SHOULD PROCEED DIRECTLY TO THE DISCLOSURE DOCUMENT AND STUDY IT CAREFULLY TO DETERMINE WHETHER SUCH TRADING IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. EQS CAPITAL LLC IS A CFTC REGISTERED COMMODITY TRADING ADVISOR AND COMMODITY POOL OPERATOR. PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN CONNECTION WITH POOLS WHOSE PARTICIPANTS ARE LIMITED TO QUALIFIED ELIGIBLE PERSONS, AN OFFERING MEMORANDUM FOR THIS POOL IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A FUND OR UPON THE ADEQUACY OR ACCURACY OF AN OFFERING MEMORANDUM. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS NOT RE- VIEWED OR APPROVED THIS OFFERING OR ANY OFFERING MEMORANDUM FOR THIS FUND. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EX- CHANGE COMMISSION (THE “SEC”) OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS AS A THE SOUR C E F OR C OM M OD ITY TR AD ING SIGN ALS TERMS and DISCLOSURES