Newsletter 091415 Final Volume 1 Issue 12

Copyright © 2015 EQS Capital Management LLC, See important disclosure on last page

All rights reserved. 1 www.eqstrading.com

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.

http://eqstrading.com/eqstrading.com/Weekly_Publications/Entries/2015/6/29_Weekly_Newsletter_Volume_1_Issue_1.html





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.




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.





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.





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]

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 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

Newsletter 091415 Final Volume 1 Issue 12

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Transcript of Newsletter 091415 Final Volume 1 Issue 12