newsletter 081715 final volume 1 issue 8

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.


(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

http://www.economist.com/printedition


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


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


Services

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Economic Quantitative Strategy (aka EQS) is an investment and trading strategy

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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?


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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-

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 081715 final volume 1 issue 8

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