Global Commodity Market Wrap-Up

Last week, most of the commodity prices settled in green. Precious metal prices recovered sharply after a heavy selloff recently. Weak Consumer sentiments data, concerns over Afghanistan situation, and rising delta variant cases in the US helped the yellow metal prices to recover from recent low levels. Silver also recovered from deep lows but was not able to close in green last week. Meanwhile, base metal prices also maintained its upside rally due to temporary disruptions in Alashankou land port operations by China as the new COVID cases created the supply shortage. Copper and Lead witnessed a weekly rise of ~1.05% and ~3.42% respectively. On the Energy front, Natural gas witnessed downside correction from higher levels with the weekly loss of 6.74% while Crude oil prices settled with a moderate gain of 0.23%.

Agricultural commodities also settled in a positive territory last week as Sugar and Corn prices continued to trade strongly. Cold weather in Brazil lowered the sugarcane production outlook. Also, USDA, in its latest WASDE report, trimmed the grains production estimation due to extreme hot weather conditions which pushed up the prices of agricultural commodity segment.     

In the ongoing week, all the major commodities expect Gold and Sugar traded with negative bias further indicating heavy volatility in commodity prices. Meanwhile, all eyes are on the upcoming FOMC meeting minutes which will majorly impact the commodity prices in whole.

The upcoming macro events that may impact the market sentiments include an update on FOMC Meeting Minutes, US Unemployment Claims, Philly Fed Manufacturing Index data, and Existing Home Sales data 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 Aluminium Futures (LME: CMALU21) and Soybean Oil Futures (CBOT: BOU1) for the next 1-2 weeks’ duration:

Aluminium September Futures Contract (LME: CMALU21)

Price Action and Technical Indicator Analysis:

On the daily chart, LME Aluminium price broke out the downward sloping trend line resistance at USD 2575 level on August 11, 2021. Since the breakout, prices are sustaining above the downward sloping trend line. Moreover, prices are trading above the rising trend line support level at USD 1775.80 and continuously taking support of it. 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 ~53.36 level. Now the next crucial resistance level appears to be at USD 2700, 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)

Aluminum inventories in Warehouse have declined sharply in the past five months starting from Mid-March 2021 which led to an increase in the overall aluminum prices. Notably, Aluminum inventories data stood at 1.315 million tons on 17^th August 2021 down from peak stock levels of 1.967 million tons as on 18^th March 2021 in LME Warehouses.

As per the above-mentioned price action and technical indicators analysis, we can conclude that Aluminium 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 September Futures (CBOT: BOU1)

Price Action and Technical Indicator Analysis:

CBOT Soybean Oil Futures is trading below the downward sloping trend line resistance level at USc 64.50 and continuously facing resistance of the same. Currently, the price is facing selling pressure from the higher levels. Moreover, prices are trading below the trend-following indicators 21-period SMA and 50-period SMA, indicating a bearish trend. The leading indicator RSI (14-period) is trading at ~45.45 level. Now the next crucial support level appears to be at USc 58.20, 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 September Futures (BOU1) 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 ‘Sell’ 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 August 18, 2021 (Chicago, IL, USA 04.24 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.

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.