Global Commodity Market Wrap-Up

The precious metals, base metals, and energy commodity prices have shown significant gains last week and clearly outperformed some of the agricultural commodities such as Wheat and Corn. However, the energy sector and crude oil prices are trading near the new highs that took the black gold commodity in an overbought region. Conversely, volatile movement in base metal prices especially copper gives an indication of pause in record price rally which might witness some correction. Also, the recovery in LME warehouse inventory data of copper is showing signs of reversal after a sharp drop from April 2021 that should put some pressure in the copper prices.                

This week agricultural commodity prices took a sharp reversal in prices from lower levels. Also, there is a moderate correction in copper prices from higher levels this week. Crude Oil prices gave a sharp upside rally in the ongoing week due to rising expectations of crude oil demand during the summer season in the US.

The upcoming macro events that may impact the market sentiments include an update on Australian Retail Sales data, Natural Gas Inventory, Crude Oil Inventory, US Unemployment Rate 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 Crude Oil July Futures (NYMEX: CLN1) and Copper July Futures (LME: CMCUN21) for the next 1-2 weeks’ duration:

Crude Oil July Futures Contract (NYMEX: CLN1)

Price Action and Technical Indicator Analysis:

Crude Oil Inventories

Looking at the Crude Oil 5-year monthly average price seasonality, the prices normally start to decline in May month till June and prices might again start to recover till October. It is eminent from the below chart that current crude oil prices are following its 5-year monthly price seasonality pattern. 

As per the above-mentioned price action and technical indicators analysis, we can conclude that Crude Oil July Futures (CLn1) 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. Technical summary of our ‘Sell’ recommendation is as follows:

LME Copper July Futures (LME: CMCUN21)

Price Action and Technical Indicator Analysis:

LME Copper Futures' prices witnessed an undisputed rally from low of USD 7719.50 made on 03 February 2021 to the recent high of USD 10746 tested on 10 May 2021, a gain of ~39.20 percent in the last 3 months. Currently, prices are trading in a steep rising channel formation and facing resistance of the upper band of the channel on the weekly chart. Prices recently started to move downward after forming a dark cloud cover (bearish reversal) candlestick pattern on a weekly time frame chart, which indicates the possibility of a change in the trend to the downside.

However, the prices are trading above the trend-following indicators 21-period SMA and 50-period SMA. The leading indicator RSI (14-period) is trading in an oversold zone (~72.40 levels) which is supporting a bearish stance. Now the next crucial support level appears to be at USD 9464, and prices may test that level in the coming sessions (1-2 weeks).

LME Copper Warehouse Inventory (MCU-STOCKS) Vs LME Copper Continuous Price (CMCUc1)

The copper inventories in Warehouse have decreased drastically in the past two months starting from April 2021 thereby providing support to the copper prices. However, looking at the recent inventories data, copper inventories are showing recovery from lower levels witnessed in May 2021. The copper inventories data stood at 120,700 tons on 28^th May 2021 in LME Warehouses last week down from to 125,825 tons on 21^st May 2021.    

As per the above-mentioned price action and technical indicators analysis, we can conclude that Copper July Futures (CMCUN21) 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:

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 in a range. However, a slight deviation on either side in the ‘Entry Price’ can be considered depending upon the potential expected or indicated.

Note: 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.

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

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.