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Analysis

3 Commodity ETFs Pose Caution In July

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Three commodity exchange traded funds (ETFs) have a tendency to rise or fall in July, indicating both opportunity and risk for investors, according to Investopedia. Two of the ETFs have a strong bearish bias while one has a long-term historical tendency to rally, although in recent years it has been slammed lower.

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Investors are advised to use seasonality in conjunction with other fundamental or technical criteria, as it only shows what happened in the past and not necessarily what will happen this July. It is important to consider factors like targets, stop-losses and entries before trading the ETFs based on seasonality.

United Natural Gas Fund (UNG)

Source: Investopedia

The United States Natural Gas (UNG) fund, an ETF designed to track in percentage terms the movements of natural gas prices, has struggled in July over the last four years. UNG’s price has lost 5.8% on average and never closed the month higher than it opened. Even in 2016, when the price rallied, natural gas prices struggled through July and August.

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UNG’s investment objective is for the daily changes in percentage terms of its shares’ net asset value to reflect the daily changes in percentage terms of the natural gas price delivered at the Henry Hub, La., as measured by the daily changes in the benchmark futures contract minus expenses.

The fund offers commodity exposure without using a commodity futures account. It offers equity-like features such as intra-day pricing and market, limit and stop orders.

Over the last 19 years, natural gas futures have dropped in July 68% of the time and lost 2.9% on average. The fund has been struggling in 2017, but recently, it bounced off support near $6.50. The seasonality factor, however, points to a re-test of the support area.

In April, natural gas futures rose 2% when a report indicated natural gas supply growth already peaked. Inventories rose by 2 billion cubic feet following an April draw of 43 billion cubic feet, which fell far short of expectations that supply would increase by 7 billion cubic feet.

Natural gas futures increased 0.7% following the news.

Natural gas reached its 52-week low in April 2016 of $2.64, followed by increased volatility due to unseasonably warm weather that crimped its bull run in early 2017. From mid-February to April 2017, natural gas reversed course and stayed 8.8% up from the year’s start.

UNG did not follow suit, however, rising only 0.9% and was down 16% on the year. UNG has witnessed a decline in its net asset value due to transaction and borrowing costs despite its underlying asset gaining in value.

iPath Bloomberg Sugar ETN (SGG)

Source: Investopedia

The iPath Bloomberg Sugar ETN (SGG), designed to provide exposure to the Bloomberg Sugar Subindex Total Return, has lost value every July for the last three years, dropping an average of 9.7%. While this strikes of bearishness, it is actually a recent phenomenon. The outlook for July improves in reviewing the results over four additional years.

The price over the last nine years has increased in July 67% of the time, gaining 2.9% on average. There have been some big loss years of late, but there were bigger positive years previously.

Sugar futures contracts have increased 68% of the time over the last 19 years, rising 4.8% on average.

The Sugar ETN suffers a downtrend at the present time, having dropped steadily since March. $25 to $24 to is a plausible support area, since that is where SGG bottomed in 2015.

ETNs are riskier than ordinary unsecured debt securities and offer no principal protection. The ETNs are unsecured debt obligations of Barclays Bank PLC, the issuer, and are not, directly or indirectly, guaranteed by any third party, according to Barclays Bank PLC.

Any payment made on the ETNs, including at maturity or upon redemption, relies on Barclays Bank PLC’s ability to satisfy obligations as they come due.

The index reflects the returns potentially available through an unleveraged investment in the futures contracts on sugar. It currently consists of one futures contract on sugar that is included in the Bloomberg Commodity Index Total Return.

Owning ETNs is not the same as owning interests in the commodities futures contracts comprising the index or a security directly tied to the index performance.

Most of the world’s supply of sugar is not traded on the open market. It is also highly subsidized in its countries of origin, which can make it impossible to determine its true supply and demand. All governments, to some extent, intervene with the growth and production of sugar in their country.

Teucrium Corn ETF (CORN)

Source: Investopedia

The Teucrium Corn ETF (CORN), which provides investors unleveraged, direct exposure to corn without the need for a futures account, has also had rough Julys as of late. It has fallen every July in the past four years, posting average declines of 8.9%.

CORN was created to minimize the effects of rolling contracts by not investing in front-month (spot) futures contracts, thereby limiting the number of contract rolls every year.

The futures contract offers a longer historical precedent as the ETF has existed for only eight years. Over the last 19 years, corn futures have increased only 32% of the time in July, shedding 3.4% on average.

The ETF has ranged since mid-2016. At the beginning of June, the price tumbled from the top of the range.

The ETF currently trades around $18.50, which could represent a support area according to the range.

If selling continues as history indicates, the next fall could take the price beneath $17.68, the August 2016 low.

Corn futures, which are traded on the Chicago Board of Trade, trade according to loose seasonal patterns. This is mainly on account of the seasonal availability of corn in the cash market. While these trends may not always work alone, they often work in conjunction with other fundamental and technical indicators.

Most farmers and professional grain traders know these trends. Farmers use them to initiate hedge positions and as a guide as to when cash corn should be sold. Traders use the knowledge to back up an existing indicator.

Most seasonal charts indicate the corn market is at its weakest prior to and during the harvest, which is generally between September and November, when North American farmers harvest corn and deliver it to local elevators. The lows occur because of the supply of cash corn that gets thrown into the market. High supplies, as with any market, equate to low prices.

Most traders use these indicators to confirm another signal, be it technical or fundamental. They should not trade using seasonal trends alone, since outside market forces can have a major impact.

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Analysis

Cryptocurrency Analysis: Ripple Continues Rampage as Litecoin and Ethereum Enter Correction

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Ripple remained in the center of attention in the segment after breaking out to a new all-time high yesterday, and the coin almost doubled in value, climbing above the $0.80 level. The currency concluded a 6-month long consolidation pattern with the move after being the only major on a long-term buy signal in our trend model.

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XRP gave a short-term sell signal today, while turning neutral regarding the long-term setup. Investors now shouldn’t add to their positions, although further gains are still possible, and reducing holdings somewhat is a good idea here. Major support is still found at the prior high near $0.4250 and in the $0.30-$0.32 range.

XRP/USDT, 4-Hour Chart Analysis

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While Bitcoin stagnated, and Bitcoin Cash jumped, Ethereum, Litecoin, Dash, and IOTA has been drifting slightly lower, although the recent gains are still mostly intact, and the basic setup in the segment is unchanged.

Litecoin fell below the $300 level after yesterday’s consolidation, and the coin faced strong selling pressure in the latter half of the session. The currency remains extremely stretched regarding the long-term momentum indicators, and although the short-term uptrend is still intact, a deeper correction is likely in the coming weeks, with key support levels found at $125 and $100, and weaker levels at $260 and $170.

LTC/USD, 4-Hour Chart Analysis

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Analysis

Daily Analysis: Dollar Falls, Gold Jumps after Yellen’s Final Move

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Wednesday Market Recap

Asset Current Value Daily Change
S&P 500 2668 -0.02%
DAX 13125 -0.45%
WTI Crude Oil 56.65 -0.68%
GOLD 1258.00 1.35%
Bitcoin 16,100 -6.32%
EUR/USD 1.1842 0.73%

The Federal Reserve hiked interest rates as expected today, and although the central bank’s monetary statement was slightly more hawkish than expected, the market’s reaction didn’t reflect the much-anticipated move. The worse than expected Core CPI reading that underlined the low-inflation narrative weighed on the recently strong Greenback, while stocks were unchanged after decision and bonds gained ground as yields retreated.

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EUR/USD, 4-Hour Chart Analysis

The major indices are hovering near their all-time highs with the DOW leading the way higher, hitting a new record for the second day in a row. While volatility Is expected to remain low as we approach the end of the year, market internals and valuation levels are still concerning from a long-term perspective, and stocks outside the US are also negatively diverging. The action in crude oil could be slightly more interesting as the commodity is starting to act in a slightly bearish manner after a grinding multi-month rally.

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WTI Crude Oil, 4-Hour Chart Analysis

The Brexit process is still in the center of attention in Europe, although volatility took a nosedive on the old continent as well, and it’s unlikely that the Christmas period will be much different, given the predictable drop in volumes and trading activity. The date of the next election in the financially and politically troubled Italy has been set to March 4th next year, and the early date caused some turmoil in the countries assets, which dragged the Euro Stoxx 50 lower today, together with the DAX and the other major indices.

Cryptocurrencies

As the total market cap of the crypto-market crossed the incredible $500 billion mark, Ripple, NEO, and Ethereum made headlines with lofty gains in the face of the severely overbought readings elsewhere in the segment. While XRP and NEO are still not overbought from an investment perspective, Ethereum reached our final target for its break-out and triggered a long-term sell signal.

ETH/USD, 4-Hour Chart Analysis

The previously surging IOTA continued its correction, Litecoin consolidated in a relatively narrow range, while Dash, ETC, and Monero scored marginal new highs before turning lower together with BTC. The most valuable coin that has lost some of its momentum “mojo” in recent days fell back below last week’s highs, and that could mark a failed break-out and a start of the deeper correction that seems more and more likely.

BTC/USD, 4-Hour Chart Analysis

Key Economic Releases on Wednesday

Time, CET Country Release Actual Expected Previous
11:30 UK Average Earnings 2.5% 2.5% 2.3%
11:30 UK Claimant Count Change 5,900 3,300 6,500
11:30 UK Unemployment Rate 4.3% 4.2% 4.35
15:30 US Core CPI 0.1% 0.2% 0.2%
15:30 US Crude Oil Inventories -5.1 mill -3.6 mill -5.6 mill
21:00 US Fed Rate Decision 1.5% 1.5% 1.25%
21:00 US FOMC Statement

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Analysis

Technical Analysis: Volatility on the Rise Again, as Ripple and Ethereum Hit Targets

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Ripple has been the star of today’s session in the cryptocurrency segment, as the only major coin on a long-term buy signal in our trend model continued yesterday’s break-out, and surged to a new all-time high. The currency cleared the $0.425 level that marked the top in May, and after the more than 6-month long consolidation phase, it promptly neared the $0.50 level.

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While the short-term momentum indicators are now stretched, the coin is still in an encouraging long-term setup, although the best period to buy already passed. The coin could be dragged lower in the case of the expected broad correction in the segment, but we expect XRP to outperform in the coming period, with support levels found at the prior high and below that in the range between $0.30-$0.32.

XRP/USDT, 4-Hour Chart Analysis

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Ethereum has been the other top coin on the rise, as the second largest digital currency surged past the final range projection target of the break-out two weeks ago at $685 in the aftermath of the launch of the BTC futures on Monday. The ETH token is now also on a sell signal on all time-frames, and we advise investors and investors to wait for the next major correction to establish new positions. Support levels are now found at $575, $500, $480, and $400.

ETH/USD, 4-Hour Chart Analysis

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