newsletter 10122015 final volume 1 issue 16

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

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SIGNALS

With the third quarter behind us, now it is

time for earnings reports!

Markets are just reflections of basic eco-

nomics and technicals also play an impor-

tant role. News, systems, charts, and rules

are imbedded into

trading algorithms

and those techni-

cals move markets

and prices. The

other force that

moves markets not

only in the short

and near term but

more importantly in

the long term is

fundamentals. As

we enter Q3 earn-

ings reports, it will

be fundamentals

that will be on dis-

play and moving

the markets in the

coming weeks and

months.

Governments, cen-

tral banks, traders,

the media, and

algorithmic systems can only do so much to

move markets up and down; it is the laws

and forces of supply and demand that can-

not be broken and what ultimately move

markets. Commodities are true supply and demand

markets; producers provide supply and consumers

demand those products.

Breaking news and events provide volatility, but it is

fundamentals that drive long-term trends and in-

deed, most commodities are

in a long-term downtrend.

Short term technicals (news,

fiscal and monetary policy,

speculation, etc) have pro-

vided recent lifts to markets

and the commodity sector.

Earnings of firms will give us

the all so important funda-

mental snapshot to look at

which will provide the big

picture…Will more or less be

demanded, will more or less

be supplied, and will long-

term price trends be looking

up or looking down?

China, Japan, and Germany

have all reported falling

monthly PMI numbers, and

their weakness is weighing

on earnings of firms with

global exposure. The technicals and fundamentals of

the global economy and firms have been pumped up

by trillions of dollars (continued on Page 2)

IT ’S NOW UP TO EARNINGS

-The current WTI is now up 9.81%

-Though down for the month, the Current NG position is now up 12.34%!

*You can achieve these results with discipline and by follow-ing the EQS daily trade recom-mendations and using the daily EQS Stop Loss guidance

I N S I D E T H I S I S S U E :

Q3 Earnings Cont. 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 16 October, 12 2015

A Weekly Publication on the Commodity Markets

©



in fiscal and monetary stimulus since the financial crisis. The disappointing US Jobs Report on

October 2nd saved the market as it was so bad it was good as traders predicted more stimulus

(and cheap interest rates) will keep business flowing.

Global data has been painting both a technical and fundamental picture that world economic

output is slowing. On October 6, 2015, the

IMF cut the global growth forecast for the

4th time in the last 4 quarters, and the

current forecast of 3.1% is the lowest

global growth rate going back to the finan-

cial crisis. Nowhere is the concept of the

global economy and growth more evident

than in declining corporate profits (see

FRED earnings graph).

While technicals can move prices, at the

end of the day technicals cannot replace

the fundamentals of global trade and prof-

its of firms. Firms can find ways to improve

earnings, but US corporate profits are basi-

cally flat and shrinking.

The markets have been extremely volatile

the last few months because uncertainty drives fear, and fear drives volatility. As firms report

earnings uncertainty will become fact, either earnings and demand was up or it was not, and

the markets can get back to trading on fundamentals.

One advantage of commodities is how easily the supply and demand equation can be calcu-

lated compared to equities and bonds. At the end of the second quarter, we asked the question,

Are Commodities Pointing to a Global Recession? Commodities tend to be a leading indicator,

falling prior to the recession. Commodities are a direct reflection of the global economy, and as

prices continue to fall, there is no surprise that the world economy is starting to cool and we

may be nearing the end of the

business cycle.

If you compare the business

profit graph to the falling com-

modity graph it paints a fairly

obviously picture, falling com-

modity prices lower firm prof-

its, and low firm profits cause

a recession.

At some point firm level, prof-

its reflect the reality and not

the indicator. Something has

to give, either firm-level profit

start catching up to market

valuations, or market valuations have to come down. Cheap commodities are good for individu-

als and firms that consume, but deflation sucks the life out of profits. Third quarter earnings will

determine if profits have caught up with valuations or it fundamentally firms are overvalued and

prices need to further correct down.

Once again, uncertainty drives fear, and fear drives volatility, but when uncertainty becomes

fact, a whole new type fear can set in. Earnings reports from Q3 will soon become fact, and third

quarter earnings will tell us if the truth is a scary place.

Q3 EAR N IN G S…(C O NTI N U ED )



After EQS initiated its long call on 9/29 at

$44.43/bbl, crude oil prices remained range

bound for a week and eventually broke out to

the upside, trading above the psychological

$50/bbl, for the first time since July. The

bulls seemed to gain enough energy to leap

ahead of the bears after Baker Hughes re-

ported the last two weeks the number of rigs

drilling for oil fell sharply. The plunge in oil

prices in the past year prompted energy pro-

ducers to cut spending on new drilling, and

investors are closely watching how quickly

U.S. production will decline in response. Fur-

thermore, geopolitical concerns about Rus-

sia’s military operations in Syria also sup-

ported prices. Russia began airstrikes and

assaulted opponents of Bashar al-Assad’s

regime and the intervention added to the un-

certainty in the Middle East, one of world’s

biggest oil-producing regions.

However, the global glut of crude supplies

may keep price gains limited. This week’s EIA

report briefly took the wind out of the bulls as the U.S. inventory data showed that crude-oil supplies

rose more than expected last week, helping push total U.S. stockpiles of crude oil and petroleum prod-

ucts to another record high. The overhang in inventories has many analysts doubting any prolonged

increase in crude. Goldman Sachs is one of the outspoken oil market bears as they argued this past

week that this week’s rally is not supported by current supply-and-demand data and expect this rally

to reverse inline with our

forecast for lower prices.

EQS agrees with Goldman

in that current supply and

demand data is rather

bearish. Inventories keep

hitting all-time highs and

so this recent breakout to

the upside has many in-

vestors doubting the price

move to begin with. EQS

believes the market is not

focusing on the current

fundamental picture but

forces in action that could

shape what lies ahead for

supply and demand bal-

ance. More specifically,

traders are anticipating

the worst may be over as

refining maintenance

comes to a close and sea-

sonal demand begins to

pick back up during winter.

With rig counts continuing to come off, US production declines are expected to continue and by mid-

2016, the US could be fairly balanced. This anticipation has caused the term structure to improve

which is a bullish indication. The two remaining questions are will OPEC cut production and will global

demand for oil continue to remain stable in the midst of pending US rate hikes and China hard land-

ing? The answer to these questions could clarify whether oil will reach the $70s by mid-2016 or return

to its 2015 lows. But for now, the bulls have leaped ahead!

T H E C RU D E O I L B U L L S H AV E L E A P E D A H E A D

Oil and Refined Products

After EQS initiated its

long call on 9/29 at

$44.43/bbl, crude oil

prices remained range

bound for a week and

eventually broke out to the

upside, trading above the

psychological $50/bbl,

Bullish



Natural gas prices are begin-

ning to firm as bottom-pickers

are anticipating the recent

historical low will be the bot-

tom. Buyers have reason to

be excited as natural-gas

prices are hovering near a

three-year low and are about

one-sixth of the record hit a

decade ago. Even when oil

prices were rebounding from

the low they hit during the

2008-2009 recession, the

North American natural-gas

market was entering a glut from which it has yet

to recover. As we have discussed in past issues of

Signals, oil, and natural gas are different in many

ways, like how they are traded internationally. Oil

products can be put into a tanker and shipped to

higher priced markets while the process is a bit

more complicated with natural gas as it needs to

be converted to LNG. Furthermore, high prices in

Asia or Europe mean little since natural gas export

capacity remains largely on the drawing board.

Another issue is that booming oil production in

shale formations also produced plenty of gas.

Drillers were willing to sell that byproduct at al-

most any price or just flare it off in many cases.

Finally, plunging rig counts, which are now at re-

cord lows, have not YET translated into lower gas

production or supply. The Energy Information Ad-

ministration reported on Thursday that gas in un-

derground storage was near a record for this date

of over 3.6 trillion cubic feet, up 14% from a year

ago. Baker Hughes said the number of rotary rigs

N AT U R A L G A S S T R U G G L I N G T O O V E R C O M E R E S I S T A N C E

Bearish

Natural Gas

in the U.S. devoted explicitly to

gas hit a new all-time low last

week. The productivity of existing

wells continues to be good and

efficiency has improved so that

more gas can be extracted com-

pared to rigs in service.

Although EQS remains bearish

until the downward trend in

prices is broken, our conviction is

low. After all, in October, there is

a growing risk that winter-related heating de-

mand will cause price spikes. And the bears are

beginning to get concerned because we are

approaching

winter and

prices are

becoming

too low to

go short. So

at what

price will the

trend be-

come un-

friendly?

Watch for a

settle above

$2.60/

mmbtu as

this could

be a clue

that the

Plunging rig counts,

which are now at record

lows, have not YET

translated into lower gas

production or supply.

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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

Commod-

ity 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 in-tended as, nor should it be construed to be, investment advice. In no event will EQS, its affili-ates, 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 Sub-scription or the failure of performance, error, omission, interruption, delay in operation or trans-mission. 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

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 10122015 final volume 1 issue 16

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