newsletter 10192015 final volume 1 issue 17

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SIGNALS

The last 3 week rally could make October

the strongest month for US equites of the

year, so let’s forget the economic facts for a

moment and pause to toast market irration-

ally.

Life would be easy for economists if people

and markets were rational. Economists

study data, and with the collection of facts

make rational projections for the future

based on data. Economics is a very com-

mon sense science but in this crazy, messed

up world where bad is good and good is bad,

the science of economics is thrown out of

the window. As the market throws common

sense out of the equation, we are

left with emotions such as fear,

hope, and greed driving markets.

Wouldn’t it be nice if we lived in

that magical common sense

dream world where good is good,

and bad is bad?

Last week we continued to pile

onto the global rally that has add-

ed over $4 TRILLION in value to

world equites this month. A slew

of weak economic reports has

pushed back the expectations of a

US FED rate hike in 2015 which

has fueled the rally. US commer-

cial banks concerned over continued low yields have

increased their Treasure holdings to a record $2.15

trillion, translating to a stake almost double the

amount owned by China, the biggest U.S. foreign

creditor. According to futures data, the probability of

a FED increase in rates by the end of the year has

now dropped to 30% from 70% odds at the beginning

of August.

So, let’s dissect this October rally. Many investors

went to cash prior to October for the very reasons of

the true data we have been discussing. Across the

board the market was beat down at the end of the

August and into September, and with the rally it can

now be said that the equity dip (continued on Page 2)

A TOAST TO (IR)RATIONAL

-Oil long was closed for a 8% gain in a two week peri-od!

**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 :

Irrational Cont. 2

Oil and Products 3

Natural Gas 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 17 October, 19 2015

A Weekly Publication on the Commodity Markets

©



was an overcorrection. With many investors and traders on the sidelines, low volume

has allowed the markets to rebound and is slowly bringing investors back into the mar-

ket.

Banks have performed surprisingly well considering the low rate environment, and

many large cap companies have been able to control earnings from cost reductions.

From early 3rd quarter earnings calls we are getting some good earnings reports from

firms with little global exposure, more stock buyback plans, and some key takeaways

from the misses.

The number one private consumer of labor in the world is Wal-Mart. Wal-Mart only

lacks wearing the world labor king to the US Department of Defense and the Chinese

Army! On Wednesday Wal-Mart suffered the biggest single day stock price drop in 15

years as the company announced flat revenue and possible future earnings declines.

The stock is now down over 30% for the year, but it took a one day drop of 10% to get

the media to take notice.

Wal-Mart is a direct reflection of America, from both a supply and demand point of

view. Like America, Wal-Mart has a two-part problem: falling demand (i.e. less con-

sumer consumption), and the thirst for labor. The bright spot of our American eco-

nomic data has been employment. Though we did not hit the job creation target at the

last job report, the sector is still improving as the unemployment rate is now hovering

at the low 5% range. The concern from the FED has been wage growth (specifically

the lack there of) and Wal-Mart is working hard to provide wage growth. However,

Wal-Mart’s stock has been beaten down as investors want profits right now AND in the

future and this is very difficult to do when demand is down and expenses are in-

creased.

We have discussed how the FED is backed into the corner and no matter what they do

with rates the market will not be happy. Wal-Mart has shown us the same level of mar-

ket irrationalness. It is not just the FED that is backed in the corner, but also corpora-

tions like Wal-Mart. Economists would love to find a way for people to have their cake,

and eat it too, but that tends to be a bit tricky. Things that we do now have future con-

sequences, whether it be the FED continuing with prolonged low interest rates, or Wal-

Mart investing in infrastructure and wage growth.

So while Brazil, the world’s seventh economy has their credit turned to junk status and

India’s import and export levels are 25% below last year, let’s forget about it and

cheer on the bull market. So here is to low rates, the hope of more central bank stim-

ulus, cheap commodities, stock buybacks, and growing corporate profits today AND

tomorrow!

As long as people are not rational, you can forget any usefulness coming from econo-

mists until the markets wake up and see the real facts.

IR RATIO NAL N ESS …(C O N TI NU ED )

Brazil, the world’s seventh

economy has had their credit

turned to junk status, and In-

dia’s import and export levels are 25% below last

year



Oil was so close to an upside break out this week as WTI briefly traded above $50, but it could not

settle above the magic Ulysses S. Grant mark as the bears staged a surprise attack. With a break

out failure, the EQS model closed out the long oil and products position for a nice 8% gain.

As we mentioned in last week’s

Signals Newsletter, the two factors

that could have impacted our bull-

ish stance was OPEC and the glob-

al economy. The week gave clo-

sure to one factor as OPEC men-

tioned it is not reducing output

despite current price environment.

In fact, the International Energy

Agency reported OPEC Production

increased from August to Septem-

ber, 38.19 to 38.28 million barrels

per day, respectively. The bulls

lost ground after this announce-

ment and seemed to have scat-

tered with their tails between their

legs.

Even though EQS has changed its bias to

“short” on oil and products does not

mean it is time to announce the oil bull is

dead just yet. We still believe that oil can

sustain prices above $50 a barrel by

2016, but this announcement from OPEC

was just too much to sustain the momen-

tum for the bulls. OPEC’s strategy of

inflicting pain on US shale producers has

worked as Baker Hughes reported last

week the number of US oil rigs fell to a

new 5 year low last week to 595 rigs. The

number of oil rigs has now plunged by a

total of 1014 rigs. The rig count is now

down 60% from its peak of 1609 rigs in

October 2014. However this reduction in

rigs has not translated into a significant

reduction in production yet as US oil production has only fallen nearly 5% and inventories remain

above the 5-year range. Because there tends to be a 6 to 9 month lag between rig count trend

changes and actual production changes, the US may not see a significant drop in production until

sometime in 2016.

The global economy still remains the wild

card. More data just keeps coming in

that the world economy is weak. Results

from US corporate Q3 earnings have

showed that America is hanging in there

and acting as the global prop. The mil-

lion dollar question remains when and if

the global economy comes crashing

down, and how much damage it will do to

the oil and product market when it does.

C RU D E O I L : T H E $50 F A I LU R E

Oil and Refined Products

OPEC Production

increased from August

to September, 38.19 to

38.28 million barrels

per day, respectively.

Bearish



The Cubs are in the

playoffs, and snow is in the

forecast…this can’t be

October!

Before the selloff, natural

gas rallied on weather

forecasts showing unsea-

sonably cold weather

spreading almost every-

where east of the Missis-

sippi River through early

next week. With half of

U.S. homes use natural

gas for heating, the bulls

were banking that the

weather would spark gas

demand and prices.

With unseasonably cold weather and snow fore-

casted from Wisconsin, across the Mid-West, and

into the North-East the weather related rally just

couldn’t get natural gas over the key technical

hurdle once again after a larger-than-expected

stockpile addition.

With a delay of a day of the key U.S. Energy Infor-

mation Administration report due to the Columbus

Holiday, when the EIA data hit the wire it said pro-

ducers added 100 billion cubic feet of natural gas

to storage in the week ended Oct. 9. Stockpiles

NATU RA L GA S… ANO TH ER FAILU R E

Bearish

Natural Gas

grew to 3.7 trillion cubic feet, which is 4.7%

above their five-year average level for the week

of the year and 14% above the level at this time

a year ago.

The bearish reality is that stockpiles could set a

record of around 4 trillion cubic feet heading

into the winter heating season. However, many

analysts expect US natural gas prices will raise

moderately over the next several years as sup-

plies and demand gradually begin to come back

into balance. As we

have discussed in past

Signals, gas exports

from the Lower 48

states, which are ex-

pected to start up later

this year, should have a

greater impact on global

gas markets than on

domestic prices. Do-

mestic markets could

we forced to slow as

pipeline capacity and

storage become and not

low prices may become

the major factor on

growth of the industry

until the demand and

infrastructure can sup-

port additional growth.

Stockpiles grew to

3.7 trillion cubic feet,

which is 4.7% above

their five-year average

level for the week of

the year and 14%

above the level at this

time a year ago.



Why You Need EQS

From technicals to fundamentals to macroeconomics, analyzing com-

modity markets can be a daunting task. Let EQS do the work for you.

Through its subscription service, EQS Trading provides traders and

hedgers easy to follow trading signals for major commodity futures mar-

kets, 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 com-

modity markets.

EQS Capital Management also offers a commodity hedge fund (EQS

Commodity Fund LLC), which employs the same signals in its subscrip-

tion service in a private placement fund for accredited investors and

institutions. Because EQS uses a “long” and “short” strategy, it is de-

signed to

generate

returns,

regardless

of which

way the

market is

moving.

EQS

Commodi-

ty Fund

imbeds strict risk management principles through diversifying 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

commodi-

ties. Be-

cause of its

quantitative

nature,

EQS has

been rigor-

ously back-

tested with

15 years of

historical

data to

ensure the

strategy works in a variety of market conditions. Furthermore, because

the global economy changes over time, EQS employs dynamic parame-

ters that evolve as the market changes.

About Us

Who is EQS?

Richard C. Rhodes

Mr. Richard C. Rhodes is the President and Founder 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 li-

censed Series 3 CTA (Commodity Trading

Advisor) with the Commodity Futures Trading

Commission and a member of the National

Futures Association.

Richard began his professional career on a

drilling rig in West Texas with Conoco Explo-

ration 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 be-

gan as an operations engineer and later found his true passion in

trading, which leveraged his professional interests in mathematics

and economics. Richard joined Duke Energy in 2002, where he spent

ten years working in the energy trading department and earned The

Pinnacle Award, the company’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 Business Development at

EQS Trading. As a four year varsity hurdler

on the track team at Ball State University,

Jonathan earned Bachelor of Science de-

grees in Risk Management, Insurance, and

Economics, and started working on his PhD

in Economics at North Carolina State Uni-

versity 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 Energy, the

largest utility in the nation) as a Senior Real Time Trader. Jonathan

then opted to become an entrepreneur and started a consulting firm

specializing in finance and economics, owning and running seven

different small businesses before joining EQS in 2015.



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]

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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 10192015 final volume 1 issue 17

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