newsletter 082415 final volume 1 issue 9

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

E Q S T R A D E R E C O M M E N D A T I O N S

T H E S O U R C E

F O R C O M M O D I T Y

T R A D I N G S I G N A L S

Volume 1, Issue 9 August 24. 2015

A Weekly Publication on the Commodity Markets

TM

Commodity Symbol Position Entry Date Entry Price StoplossCurrent 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.


(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?

WH Y TH E FE D CAN ’T W I N . . . (C ON T . )

Liquidity-driven

markets love low interest

rates and massive money

creation. But low rates

cause imbalances….


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.

WH ER E D ID SUMM ER 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


$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

MAK E THAT E I GH T DOW N 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


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?


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: [email protected]

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

T H E S O U R C E

F O R C O M M O D I T Y

T R A D I N G S I G N A L S

TERMS and DISCLOSURES

newsletter 082415 final volume 1 issue 9

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