Post on 12-Apr-2017
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SIGNALS
Back on June 29th, our cover story in
“Signals” headlined EQS CONTINUES TO
WATCH CHINA AS THE WORLD WATCHES
GREECE, once the media circus ended on
the Greece saga, it was the Chinese econo-
my that rocked our financial markets in Au-
gust and it is still in front and center today.
So what is the next news story? Goldman
Sachs released a report that oil could bot-
tom at $20/bbl and the media pumped the
story hard so the market took a dive. How-
ever, the bulls put up a
good fight and as this vola-
tility becomes normal, a
march down to $20/bbl or
a jump up to $60/bbl at
this point would not even
seem extreme or news
worthy. Another story un-
folding is the start of the
Shemitah which in the Old
Testament of the Bible
means “the forgiving of
debts and letting fields
rest”, but when, what and
where should we focus our attention?
The global economic outlook becomes more
bearish everyday as the media highlights the
worst case of everything. The Goldman
Sachs research shows that economic weakness is
the global reality of the coming year. As this business
cycle comes to a close, we have witnessed unyielding
supply as producers pump more to meet budgets. It
is worthy of repeating that cheap oil is good for Amer-
icans and net importing countries such as China and
Japan. Most of the producing countries will be faced
with budget deficits and have to pump more oil to
support those deficits, which starts the cycle of over-
supply and could lead to the Goldman Sachs $20 oil
scenario.
Just like we wrote about back in June, the story of
interest is not the story in front and center, but the
story that has been quietly unfolding outside of the
media spotlight. The Japanese economy is that story.
(Continued on Page 2)
EQS CO N TI N U ES TO WATCH JAPA N A S TH E WOR L D WATCHES CH I NA
EQS recommended energy positions have yielded a YTD average return of 28.4%!
**You can achieve these results with discipline and by following the EQS daily trade recommendations and using the daily EQS Stop Loss guidance
I N S I D E T H I S I S S U E :
Japan 2
Oil and Products 3
Natural Gas 4
About EQS 5
Terms and Disclosures 6
E Q S T R A D E R E C O M M E N D A T I O N S
T H E S O U R C E
F O R C O M M O D I T Y
T R A D I N G S I G N A L S
Volume 1, Issue 12 September, 14 2015
A Weekly Publication on the Commodity Markets
©
Commodity SymbolDaily
Settle
Daily Price
Change
Current
Position
Entry
Date
Entry
PriceStoploss
Current
Position Return
MTD
Return
YTD
Return
Average 5-Year
Annual Return
Average 10-Year
Annual Return
Sharpe
Ratio
Max Draw
Down
WTI Crude Oil CLV15 44.63$ ($1.29) Long 9/10/2015 44.15$ 1.75% 1.71% 11.34% 20.10% 34.37% 36.09% 3.92 -31.00%
Brent Crude Oil EBV15 48.14$ ($0.75) Long 9/10/2015 47.58$ 1.70% 0.53% 9.64% 35.50% 35.05% 45.92% 1.30 -30.44%
Diesel HOV15 1.5500$ ($0.0247) Long 9/10/2015 1.5386$ 1.60% 0.13% 9.10% 46.51% 25.21% 34.18% 1.51 -30.42%
Gasoline RBV15 1.3699$ ($0.0237) Long 9/10/2015 1.3597$ 2.45% -0.65% 6.04% 41.28% 35.27% 52.35% 1.74 -31.34%
Natural Gas NGV15 2.693$ $0.010 Short 8/19/2015 2.801$ 1.10% 6.69% 1.46% -1.39% 61.24% 83.92% 1.30 -38.24%
This performance is simulated using corresponding stop loss recommendations. No leverage used on these results.
Refer to important disclosures on the EQS Trading (www.eqstrading.com) website.
Copyright © 2015 EQS Capital Management LLC, See important disclosure on last page
All rights reserved. 2 www.eqstrading.com
Years of bad fiscal policy led to the “Lost Decade” in Japan from 1991 to 2000, but now tends
to be known as the “Lost Two Decades,” as 2001 to 2010 did not hold much better, and for
that matter Japan could be entering the “Lost Three Decades” as their economy is again retract-
ing and could become yet another recession.
It has cost the Japanese economy greatly to stimulate any and every ounce of growth from the
last 25 years. It was really Japan, and not China that mastered the “Bag of Tricks” to prop up
their economy, and thanks to their great fiscal experimentation we now know many economic
policies which would NOT work when it comes to fiscal and monetary policy.
What we need to turn our attention to now is NOT the actual problems that a Chinese economic
slowdown or recession will cause, but the ripple effects of a slowdown. The Chinese ripple
could be the splash that moves from country and picks up steam and eventually turns into a
massive tidal wave, of which Japan is not ready to handle.
The Japanese economy is the 3rd largest in the world, and it is especially venerable to the Chi-
nese economy as China is their largest trading partner in the form of BOTH imports and exports.
Japan is deep into their 9th round of QE (note that using the numerical standard which has
been applied to the Federal Reserve, there may have been as many as 22 or more actual
rounds of QE) and they may not be able to fend off their 5th recession since 2008!
The stimulus by the Bank of Japan (BOJ) is massive; they have pumped $648 Billion into their
$4.2 Trillion economy. If you do the math for the last quarter, 15% of their 1.7% GDP growth is
only there because their central bank is burning up the Yen printing presses.
The honor of the highest debt-to-GDP ratio of the developed world thus falls square on the
shoulder of Japan. Japan, with just under 230% of debt to their GDP, makes Greece look like
child’s play. So why was and is Greece getting all the media attention for their debt “crisis”? It
is because Greece has reached the point where they simply cannot pay back their debts. How-
ever, Japan is one ripple away from a tidal wave that sets off their similar reality of debt default.
So it is not the headline news stories we need to be concerned with, it is how the headline news
will set up ripples that become tidal waves. Chinese economic slowdown, increased interest
rates by the Federal government, low global commodity prices putting pressure on emerging
market economies, or an American government shut down could be all it takes to set up a chain
of events that could cause government debt defaults in Japan or elsewhere. When you talk
about the straw that breaks the camel’s back, it just so happens that Japan’s camel is saddled
down with the most weight, so it would only make sense that Japan happens to have the camel
we should be watching the closest.
WATC H JA PA N…(CO N TI N U ED )
The honor of the highest
debt-to-GDP ratio of
the developed world thus
falls square on the
shoulder of Japan.
Japan with just under
230% of debt to their
GDP makes Greece
look like child’s play.
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All rights reserved. 3 www.eqstrading.com
As mentioned in our daily report this past week, EQS recently closed its short position at gain of 29.6%.
Before we dive into this week’s commentary, we would like to take this opportunity to highlight the im-
portance of stop loss management. EQS recommended its short position on 7/13 at $52.78/BBL (see
7/13 issue of Signals) and closed it on 9/9 at a$44.15/BBL. So without EQS’s recommended stop loss
parameters, subscribers would have gained 16%, but with active stop loss management, the gain on this
position would have been 29.6%, an improvement of over 13%. Indeed, this difference is significant and
through actively managing positions, returns on a risk-adjusted basis, can be improved.
We also
mentioned
in our daily
report this
past week
that EQS
has shifted
its bias to
bullish on
the oil mar-
kets and
issued a
long recom-
mendation
effective
9/10. Note
that our conviction is low at this point and it appears market sentiment has not completely shifted yet.
Nonetheless, EQS is now bullish and several factors have influenced this point of view. First and foremost
is the supply outlook for declining production seems to be taking hold. Both the EIA and IEA noted in recent
reports that the US production down trend may be sustainable at this point and the projected decline for
next year is estimated to be 500,000 barrels per day, the biggest decline in more than two decades. The
chart illustrates that production growth is slowing for 2015 and expected to be negative for 2016. The EIA
revealed in its weekly report that during the week of 9/4/2015, US production has declined to 9.135 million
barrels per day since hitting its peak during the week of 6/5/15 at 9.610 million barrels per day.
Another major factor driving EQS’s bullish stance is the improving demand outlook for oil. The IEA stated
global demand growth is expected to climb to a-five-year high, thanks to lower oil prices and a strengthening
macroeconomic backdrop. In the US, the recent upward revision to 3.7% in its GDP underscores that the
US economy is in an improved position for economic growth. US motorists seem to be embracing this low
cost environment for oil propelling gasoline demand to an eight-year high. Typically during the early stage of
a business cycle when the economic growth is rebounding, oil prices rise with demand. However, in the
current mature phase of the economic cycle, the opposite tends to happen – oil prices need to come down
to help stimulate demand and as seen in the chart, this is exactly what is happening.
However, many risks remain and several analysts such as Jeffrey Currie of Gold-
man Sachs and CNBC editor John Kilduff highlight the possibility of oil falling to
the mid 20’s. Indeed, from September to November, crude and product demand
are seasonally weak for two reasons. One, refineries are reducing capacity as the
fall refinery maintenance season ramps up and this reduces demand for crude
oil. Secondly, refined product demand slows because this is the period between
summer driving and winter heating season. This part of the year, normally would
not be such a dramatic event, however, since we are entering it with record high
inventories, the current bearish market sentiment will be difficult to overcome.
Furthermore, the expectation of possible rate hikes next week, the potential for
Iranian supply to come online in 2016 as sanctions are lifted, the possibility of
government shut-downs, and the potential for a China hard landing (is this list
long enough?) all pose downside risk to prices.
Although EQS maintains its current bullish bias, we caveat this due to the risks above and for this reason
our conviction is currently low. EQS understands our long recommendation may be early, but we feel a mar-
ket turnaround is imminent, if it has not already occurred. For further confirmation, we are looking for a
settle above $46/bbl to raise our conviction level. Crude attempted to break this level the day we issued
the long position but failed. One thing is for certain - expect the week to be filled with volatility as the Fed
announces a possible rate hike or further easing.
G O O D B Y E S U M M E R S H O R T S , L E T S G O L O N G F O R T H E F A L L
Oil and Refined Products
Bullish
The decline in US oil
production next year is
estimated to be 500,000
barrels per day, the
biggest decline in more
than two decades.
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All rights reserved. 4 www.eqstrading.com
Natural gas continues its range bound action and
EQS continues to remain bearish. Fourth quarter
could be particularly vulnerable to downside price
pressure given the expectation by many analysts
for storage to reach record high levels at the end
of the injection season.
On Thursday, the EIA stated natural gas stockpiles
rose by 68 Bcf for the week ending September 4,
2015. Market surveys estimated that the natural
gas stockpile could rise by 77 Bcf for the same
period. The less-than-expected inventory increase
led to the market holding steady this past week.
However, production levels remain strong and we
are beginning to enter the fall season when de-
mand for natural gas declines. A combination of
robust production, record inventories, and season-
ably soft demand could bring an early Christmas
present to the bears. The natural gas bulls des-
perately need winter to arrive as the bears contin-
ue to claw away any attempt of a meaningful price
rise.
Internationally, US natural gas is not the only mar-
ket where the bears are nesting. As seen in the
attached chart, many global market pricing cen-
ters for natural gas have faced steep declines this
year. As we discussed in previous issues of
“Signals”, oil-linked natural gas contracts are still
widely used overseas and with falling oil prices,
the spread between US prices and other global
markets (such as Asia and Europe) has collapsed
T H E N A T U R A L G A S B U L L S D E S P E R A T E L Y N E E D W I N T E R T O A R R I V E
Bearish
Natural Gas
since mid-2014, when oil prices were over
$100/bbl.
This brings into question the viability of many
LNG export projects that are proposed in the
US. Indeed, LNG is one of the potential long-
term catalysts that could propel natural gas
upward and out of
its range. But with
global LNG prices
coming off, the eco-
nomics for many of
the proposed LNG
projects could be in
question. This has
perked the interest
of the famous short-
seller, Jim Chanos in
his recent an-
nouncement to
short Chenier Ener-
gy. Despite this,
many analysts sug-
gest the projects are
on schedule to
begin exporting as
early as 2016 and
once this happens, the US will finally have in-
creased ability to export its cheap natural gas to
other higher-priced markets and consequently
reduce the excess supply that’s been plaguing
the market for years.
Continuing with this line
of thought, EQS believes
that the longer term
prospects for higher
natural gas prices are
favorable, pending the
successful launch of US
LNG export projects
along with the increased
market share in power
generation fuel occur-
ring now. Near-term,
however, EQS remains
bearish until a bullish inflection point is identi-
fied, which is likely to be sometime this month.
We continue to emphasize September is the
month when spot prices most frequently hit
their yearly lows, just before the onset of winter.
Watch carefully and don’t hit the snooze button,
because when the market turns, the bulls will
come back with a vengeance!
The questionable LNG
project economics has
perked the interest of
the famous short-seller,
Jim Chanos in his recent
announcement to short
Chenier Energy.
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All rights reserved. 5 www.eqstrading.com
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.
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All rights reserved. 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
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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. 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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 PRIVATE PLACEMENT MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OF-FENSE.
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