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See important disclosures on last page 1 www.eqstrading.com
SIGNALS
Overnight, Chinese exports have just
become a lot cheaper. Why would Chi-
na devalue their currency to make their
goods less expensive? It’s a bet that
China’s goods will be more competitive
in the global market, and their economy
will benefit in response.
But now, this event adds to
the uncertainty of whether
the Fed will hike rates in
September.
World stocks, Asian curren-
cies, commodities and gov-
ernment bond yields all
headed south after the
China devaluation of the
yuan last week, further
triggering concerns over
the country's economic
health. We have been re-
porting for weeks of China’s magic
tricks to prop their numbers and mar-
kets, so it is no surprise that currency
devaluation was the next act to come
out of the Chinese bag of tricks.
Tuesday, China magically devalued the
yuan 2% against the dollar, and then
Wednesday set the yuan daily midpoint
reference at 6.3306, pushing the cur-
rency down 4% from Monday’s close. The week
closed, shaking out a reference rate of 6.3975
per dollar, down 3% from the original peg. Be-
yond arresting short sellers, the Chinese govern-
ment has used a state-owned company, called
China Securities Finance Corp, to underwrite
the margin lending activity
of certain brokerages. This
Chinese government-owned
entity has become a top-10
shareholder in a large por-
tion of Chinese markets,
which is eerily similar to the
TARP bailouts. Devaluing its
currency is also not much
different from our very own
QE program. No matter how
you look at it, stimulus is
essentially money printing
in different ways.
With America buying $466 billion of goods from
China and selling $123 billion of goods to China
in 2014, with the 3% devaluation of currency,
Americans just put $17,713,118,555 in their
pockets. Think about that; the American econo-
my just became almost $18 billion richer in less
than a week, and Chinese manufactures and
consumers just got $18 billion poorer.
(Continued on Page 2)
The Chinese Bag of Tricks
The WTI short position gained 3.45% for the week!
**You can achieve these results with discipline and by following the EQS daily trade recommendations and using the daily EQS Stop Loss guidance
I N S I D E T H I S I S S U E :
China Continued 2
Natural Gas 3
Oil and Products 4
About EQS 5
Terms and Disclosures 6
E Q S T R A D E R E C O M M E N D A T I O N S
T H E S O U R C E
F O R C O M M O D I T Y
T R A D I N G S I G N A L S
Volume 1, Issue 8 August 17, 2015
A Weekly Publication on the Commodity Markets
TM
ENERGY TRADE SIGNALS FOR TRADING DAY 8/17/2015
Commodity Symbol Position Entry Date Entry Price StoplossCurrent Position
Profit (Loss)
Rolling 1-Year
Annual Return
Rolling 5-Year
Annual Return
Rolling 10-Year
Annual Return
Average
Volatility
Sharpe
Ratio
Max Draw
Down
WTI Crude Oil CLU15 Short 7/13/2015 52.78$ 1.75% 18.00% 41.61% 33.16% 35.44% 11.1% 3.92 -31.00%
Brent Crude Oil EBU15 Short 7/13/2015 58.61$ 1.70% 10.50% 56.84% 34.20% 44.28% 44.0% 1.30 -30.44%
Ultra-Low Sulfur Diesel HOU15 Short 7/13/2015 1.7360$ 1.60% 10.63% 62.07% 24.32% 33.84% 24.0% 1.51 -30.42%
Gasoline RBU15 Short 7/13/2015 2.0451$ 2.45% 16.04% 42.50% 29.85% 52.37% 38.6% 1.74 -31.34%
Natural Gas NGU15 Short 8/17/2015 2.801$ 1.10% 0.00% 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.
See important disclosures on last page 2 www.eqstrading.com
(Continued from page 1)
Not to open old wounds, but think back to 2006 and 2007 and the reliance the US
had on the housing market to support the domestic economy. The export sector in
China is what the housing market was to the United States before the party ended,
and the house of cards came tumbling down.
The communist party has already pulled about
every trick possible to prevent a full meltdown
of their equity market, but they know that the
base card that is holding up their house of
cards is the manufacturing sector, just as our
government sprang into action to prop up the
American financial industry.
The devaluation of the yuan puts a 3% hurt on
the Chinese people, but their government is
betting that because their goods are less ex-
pensive, they will become more competitive.
Another motive could be that China wants the
yuan to become the world’s reserve currency
and letting the currency float is a major step in
that direction. However, at the end of the day,
devaluing their currency is just another trick by the Chinese communist party to prop
the economy and give the manufacturing sector a fighting chance to come close to
their overinflated GDP numbers.
The focus that we have been publishing for weeks is what the Fed is going to do with
rates. The Fed has been targeting a 2% inflation number to raise rates, and this move
by China further pushes down inflation. The argument has been in place since the
recession — how can we be inflating when prices of everything from housing to oil to
Chinese trinkets sold at Wal-Mart are going down?
Based on what the market is pricing in the forward curve, it looks like the Fed is still
aiming for a rate hike in September, and we feel that the domestic and world economy
is just not ready to digest it, no matter how small the hike is. Low commodities are
actually good for the American and the world economy. Cheap oil and commodities
make it possible for the Chinese to lower costs and invest in plants and equipment.
To put the currency devaluation in perspective, think of China as a factory that just
passed cost savings on to their customers, because their suppliers just lowered their
costs. A Fed hike could unwind everything that the Chinese are trying to accomplish;
all it will take is a short-term hiccup to derail what has been, and will continue to be, a
very long road to recovery when the American house of cards comes tumbling down.
So, is China’s bag of tricks empty, and will America’s next trick be a rate hike in Sep-
tember?
T H E C H I N E S E B AG O F T R I C K S . . . ( C O N T . )
The 3% devaluation of
the Chinese yuan
allowed Americans in
put $17,713,118,555
of trading margin in
their pockets
See important disclosures on last page 3 www.eqstrading.com
Right when the bulls lined up, ready to bust through the gate with prices nearing a 3-month high,
the EIA reported a slightly larger than expected build in US inventories, and the bears came clawing
back! The U.S. Energy Information Administration (EIA) reported, Thursday morning, that U.S. natu-
ral gas stocks increased by 65 billion cubic feet for the week ending August 4. Analysts polled by
The Wall Street
Journal ex-
pected a stor-
age injection
(increase) of 55
billion cubic
feet. The five-
year average for
the week is an
increase of
around 48 bil-
lion cubic feet,
and last year’s
addition for the
week totaled 79
billion cubic
feet.
“Conditions for
high demand look to be settling in for the next two weeks,” said Aaron Calder, senior market analyst
at energy-consulting firm Gelber &Associates in Houston, in a note. "Bulls finally have something to
look forward to." Natural-gas consumption rises in the summer, when households and offices use
more electricity to power air-conditioning units. Texas, where temperatures climbed above 100 de-
grees Fahrenheit, has already seen record demand for power in recent days, according to trade
publications that track demand and prices.
So, where does that leave us for prices? Well, the bulls began to gather critical mass when they
broke out above the key resistance level, taking prices to a 3-month high on Wednesday. But even
after the EIA report, when prices collapsed, they closed above the former resistance line, which is
now support. As long as prices remain above that key support level, there is hope the bulls may
gather critical mass once again; however, after a failure to close above $2.95/mmbtu, the bears
remain dominate so EQS is reinstating its short bias.
Natural Gas: Close but no Cigar...
Natural Gas
NG Price Resistance
Becomes Support
Bearish
See important disclosures on last page 4 www.eqstrading.com
Oil prices continued plunging this
week to a new low since the reces-
sion, breaking through the key
support level discussed last week.
But the loss was surprisingly offset
by a gasoline rally, due to an un-
scheduled refinery shutdown. The
refinery outage was bullish for
products, but bearish for oil, since
less refining capacity could use
the glut of oil supply in the physical
domestic market. Unless we see
some really large production cuts soon, the
oil inventory surplus could get worse as the
fall refinery maintenance season gets under-
way. Crude and oil product inventories are
now at the highest level since the EIA began
reporting this data, going back to 1990.
We have been discussing why oil prices have
declined so much in the past issues of Sig-
nals. US production has nearly doubled over
the past six years, due to the shale boom.
Since we no longer need to import all that
crude, imports need to find a home. OPEC
used to be the swing producer and cut back
production during these times, but the US is
becoming a dominant player, which has re-
sulted in a fight for market share. OPEC has
the lowest cost of production (below $10/
bbl), and even as prices are at a seven year
low, they can continue pumping to force the
US producers out of business – so don’t ex-
pect to see a cut in production anytime soon.
IS TH E BO TT O M HE R E I N O I L?
Bearish
Oil & Refined Products
Worldwide demand remains at healthy
levels, but year-on-year growth has re-
mained flat. The developed
economies, such as the Unit-
ed States, are keeping oil
demand strong while emerg-
ing countries are showing
signs of vulnerability. Chi-
na's recent devaluation of its
currency suggests the econ-
omy of the world's biggest oil
importer may be worse off
than expected.
So where does oil go from
here? Most likely lower.
Why? No meaningful de-
clines in production have
occurred and because rig counts recently
ticked
higher
again,
more
pain is
needed
before
supply
will de-
cline
enough
to bal-
ance
with
de-
mand. Until major declines in production
take place, inventories will continue to re-
main elevated and prices will drift lower.
-
10
20
30
40
50
60
70
80
90
100
Jan
-89
No
v-8
9
Sep
-90
Jul-
91
May
-92
Mar
-93
Jan
-94
No
v-9
4
Sep
-95
Jul-
96
May
-97
Mar
-98
Jan
-99
No
v-9
9
Sep
-00
Jul-
01
May
-02
Mar
-03
Jan
-04
No
v-0
4
Sep
-05
Jul-
06
May
-07
Mar
-08
Jan
-09
No
v-0
9
Sep
-10
Jul-
11
May
-12
Mar
-13
Jan
-14
No
v-1
4
Mill
ion
Bar
rels
pe
r D
ay
World Oil Supply
Other OPEC OECD
See important disclosures on last page 5 www.eqstrading.com
Services
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.
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 eco-
nomics, owning and running seven different small businesses before joining
EQS in 2015.
.
WHAT AND WHO IS EQS?
See important disclosures on last page 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: [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-
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