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Copyright © 2015 EQS Capital Management LLC, See important disclosure on last page
All rights reserved. 1 www.eqstrading.com
SIGNALS
Labor Day used to mark the end of summer,
the time kids went back to school, and when
we welcomed cool, crisp autumn weather
after months of heat and humidity. Well,
Labor Day may mark the end of summer,
but don’t expect it to signal the end of the
heat of market volatility this year. We have
been talking
about it for
months. Uncer-
tainty drives fear
and fear drives
volatility. Uncer-
tainty is so ex-
treme at this
point that market
volatility is start-
ing to feel normal.
China, the Fed,
commodities, and
equities are not
only making the
markets nervous,
but these things
are also starting
to make the
“ordinary” popula-
tion nervous. Bill Gross, the PIMCO turned
Janus management king, with close to $200
billion under management, was quoted last
Wednesday when asked for his current view
on the market, "Cash or better yet 'near
cash' such as 1-2 year corporate bonds are
my best idea of appropriate risks/reward
investments," Gross said. "The reward is not
much, but as Will Rogers once said during the Great
Depression – "I'm not so much concerned about the
return on my money as the return of my money." The
statement from the bond king himself created a bit of
a buzz in the financial world as many analysts are
concerned that Gross is echoing the sediment of
“ordinary” people and that the “market” will be hit
further as “ordinary” peo-
ple soon tire of volatility
and ramp up redemp-
tions in the markets and
move away from risk.
To zero in on uncertainty,
we need to keep beating
the two dead horses that
we have been talking
about for months— China
and if or when the U.S.
Fed is going to increase
rates.
While the world watched
Greece back in June, we
watched China and have
not stopped. The world is
still asking the question,
is China in a recession?
Is China heading for a recession? Uncertainty around
the Chinese data again caused fear in the world mar-
kets, but the world was given some time to relax last
week as the Chinese markets were closed on Thurs-
day and Friday for their 70th anniversary parade and
celebration of their “defeat” of “Japanese Aggres-
sion” (World War II).
(Continued on Page 2)
Good Bye Summer, Hello Volatility Heat Wave
EQS short positions have gained an average of 23% since their entry!
**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 :
Volatility 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 11 September, 7 2015
A Weekly Publication on the Commodity Markets
©
Commodity SymbolCurrent
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 Short 7/13/2015 52.78$ 1.75% 27.53% 5.78% 14.54% 34.37% 36.09% 3.92 -31.00%
Brent Crude Oil EBV15 Short 7/13/2015 58.61$ 1.70% 24.19% 7.05% 32.91% 35.05% 45.92% 1.30 -30.44%
Diesel HOV15 Short 7/13/2015 1.7360$ 1.60% 21.38% 5.52% 42.93% 25.21% 34.18% 1.51 -30.42%
Gasoline RBV15 Short 7/13/2015 2.0451$ 2.45% 32.16% 2.35% 37.59% 35.27% 52.35% 1.74 -31.34%
Natural Gas NGV15 Short 8/17/2015 2.801$ 1.10% 8.11% 2.88% 0.04% 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.
Copyright © 2015 EQS Capital Management LLC, See important disclosure on last page
All rights reserved. 2 www.eqstrading.com
Leading up to the parade, China grabbed headlines as they arrested short sellers, and brought
in fund managers for “questioning” that have yet to be heard from or seen by their families. The
actions of the government and the showing of mass military strength that was on display at the
celebration parade would seem to be the actions of a government that is not afraid of western
powers, but more so of an uprising of their own people. A not too far outlandish conclusion is
that the Chinese government knows there are real domestic problems and by hiding behind
“national pride”, the Communist Party is making Japanese people and stock market
“manipulators” the scapegoats to calm citizens and keep any ideas of revolution firmly in check.
The strong anti-Japanese aggression is nothing new from China, but the two countries have very
close ties and are large trading partners. Japan has its full debt crisis to worry about. The Japa-
nese economy has been fighting stagflation, weakening GDP, mounting debt, and an aging pop-
ulation; an act of aggression, trading or otherwise, could be the preverbal straw that breaks the
camel’s
back in
regards
to Japan.
Since
China
took a
two day
national
holiday,
uncer-
tainty
was
turned
back to
the Fed. The uncertainty has now swung from discussion about increasing rates in September,
to starting another round of QE. The central problem however remains not the action, but the
uncertainty of the action. As we said a few weeks ago, The Fed Can’t Win and until the market
knows what the Fed is going to do; we are going to see continued volatility.
The market is still split on the Fed move that is now less than two weeks away. The release of
the Fed’s Beige Book on Wednesday showed that the American economy is still plowing along,
and the jobs data that was released was not bad or good, but does show that the American
economy is still plowing along. The problem is not the data, but the uncertainty of the data. If
we had great data, we would know the Fed was going to raise rates, and had the data been bad,
we would have known that rates would not only stay at zero, but that we may also be looking at
another round of QE. So the problem is not the numbers, but the uncertainty of what the Fed is
going to do with the numbers.
It may be cooling down, but volatility is only starting to heat up. Is China heading for a hard
landing? Is the Fed going to raise rates? Oh, yeah, and by the way, can Europe dig out of their
hole, and could it take a straw to break the back of Japan? These questions and more are all
pointing to a very hot autumn.
VO L ATI L I TY HEAT WAV E . . . (CO N T . )
Gross said. "The
reward is not much, but
as Will Rogers once said
during the Great
Depression – "I'm not
so much concerned about
the return on my money
as the return of my
money."
Copyright © 2015 EQS Capital Management LLC, See important disclosure on last page
All rights reserved. 3 www.eqstrading.com
The last few weeks have been a roller coaster ride for oil! Oil traded as low as $37.75/bbl and as high as
$49.33/bbl. In just 3 days, oil jumped 27.5%, its largest three-day move in 25 years, since the Iraqi Inva-
sion in Kuwait. As we consider oil’s next move, let’s review what some industry experts have said about oil
during the past 12 months…
Stephen Schork: Will be confident of oil bottom when prices are $0/bbl (12/2014)
T. Boone Pickens: A Return to $100/bbl in 12-18 months (12/2014)
T. Boone Pickens: Oil is going higher - $70/bbl by end of year (8/2015)
Hofmeister (former President of Shell): Oil will rebound to above $80/bbl later this year (1/2015)
Barron’s: Time to Buy Energy (8/8/2015)
Barron’s: Oil prices are headed toward $20/bbl (8/17/2015)
John Kilduff (CNBC contributor): Crude could drop into the mid-20s (8/20/2015)
One thing for sure is there is a lot of uncer-
tainty out there! When uncertainty hits,
it’s best to lean back and examine what
the data is telling you, as data never lies.
As discussed during last week’s Signals,
there was more than just short covering
that ignited the recent rebound. First, US
GDP was revised upward to 3.7% which
equates to a more robust demand outlook
for energy. Second, in its monthly report,
the EIA revised down its oil production
figures for June by 100,000 bpd. Finally,
OPEC mentioned it might be open to pro-
duction cuts along with Russia engaged in
the discussion. Investors have been wait-
ing for a time to buy and the convergence
of these events was just too good of an
opportunity to pass up. The WSJ reported that private equity firms recently doubled-downed their invest-
ments in energy and during the past 6 months, ETN, a popular triple leveraged long oil ETF, had $1.2 billion
in investor inflows during the past 6 months.
The jury is still out whether oil prices are free
and clear of further pain. Despite a plateau
appearing in production, US crude and product
inventories reached another all-time high. Fur-
thermore, China’s growth concerns bring into
question the global demand outlook for oil de-
mand. Finally, this past week, refinery utiliza-
tion fell as the US is entering the fall refinery
maintenance period whereby the demand for
crude will be lower.
So with the recent price rally, is now the time to
increase long exposure in oil? Not yet! In fact,
EQS recommends to continue shorting crude.
Too many bearish factors remain and invento-
ries are still increasing at such a rapid pace
that the oil glut is worsening. Yes, production
was revised down in June and inventories brief-
ly declined in June as a result (See chart), but look what happened after this—- Since June, inventories have
continued to sore to new highs week after week! Therefore, the data tells you that more production declines
(or improved demand) are needed to balance supply with demand. For those out there eager for long expo-
sure, wait to see if oil settles above $47.60, as this could be a sign that oil prices have reached an inflection
point. Other catalysts that could quickly solidify bullish sentiment would be an announcement from OPEC to
hold an emergency meeting or the Fed signaling QE4.
After the Rally… Is Now the Time to Go Long Oil?
Oil and Refined Products
Bearish
The recent downward
revision in crude
production for June is
not enough to solve the
supply glut as inventories
continue to reach new
highs.
1,000,000
1,050,000
1,100,000
1,150,000
1,200,000
1,250,000
1,300,000
1,350,000
J F M A M J J A S O N D
Ba
rre
ls (
Th
ou
sa
nd
s)
US Petroleum Inventories
5-Year Range
Average 5-Year
2012
2013
2014
2015
Copyright © 2015 EQS Capital Management LLC, See important disclosure on last page
All rights reserved. 4 www.eqstrading.com
When is natural gas going to break out of its
range? During 2015, the market has continued to
oscillate between $2.50-$3.00/mmbtu. In past
issues of Signals, we have discussed many long-
term catalysts that could break natural gas prices
out to the upside. These include increased natu-
ral gas power generation demand as a result of
coal and oil plant retirements or fuel switching
along with the potential for the US to increase
exports through the number of
LNG projects expected to come
online soon.
However, strong production and
efficiency gains from drilling are
keeping inventories well above the
5-year average. By the end of
September, many analysts esti-
mate that total US storage will be
testing record levels. During its
latest report, the U.S. Energy In-
formation Administration reported
that supplies of natural gas rose
94 billion cubic feet for the week
ended Aug. 28. Analysts polled by
Platts forecast a climb of between
83 billion cubic feet and 87 billion
cubic feet. The EIA, however, said
the latest data included
"reclassifications" from base gas to
working gas that resulted in in-
R A N G E B O U N D N A T U R A L G A S … W H E N W I L L I T E N D ?
Bearish
Natural Gas
creased working gas stocks of about 8 billion
cubic feet in the East region. Total stocks now
stand at 3.193 trillion cubic feet, which is an
increase of 495 billion cubic feet from a year
ago and 122 billion cubic feet above the five-
year average, the
government said.
Another bearish clue
is the outlook for
industrial natural gas
demand, which has
softened since the
latest ISM came in
lower than expected
at 51.1, signaling the
slowest rate of
growth for the factory
sector since May of
2013. This leaves
demand for power
generation and alt-
hough natural gas
will be increasing its
market share, the fall
shoulder season is
upon us, whereby
power demand will
dramatically drop off. So at least for now, stay
short as the near-term fundamentals of natural
gas paint a rather bearish picture.
The latest ISM came
in at 51.1, signaling
the slowest growth
rate for the factory
sector since May of
2013.
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
30.00
35.00
40.00
45.00
50.00
55.00
60.00
65.00
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-20
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20
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-20
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-20
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ISM Industrial Demand (YOY 3mma)
ISM Index vs NG Industrial Demand
In a Range… Natural Gas Prices
Copyright © 2015 EQS Capital Management LLC, See important disclosure on last page
All rights reserved. 5 www.eqstrading.com
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imbeds strict risk management principles through diversifying its portfolio
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What is EQS?
Economic Quantitative Strategy (aka EQS) is an investment and trading
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direction for
commodi-
ties. Be-
cause of its
quantitative
nature,
EQS has
been rigor-
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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 licensed
Series 3 CTA (Commodity Trading Advisor) with
the Commodity Futures Trading Commission
and a member of the National Futures Associa-
tion.
Richard started his professional career on a
drilling rig in West Texas with Conoco Explora-
tion 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 mid-
stream, refining, pipeline, and distribution operations. During his eight
years with Koch Industries, Richard began as an operations engineer
and later found his true passion in trading, which leveraged his pro-
fessional 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 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 Univer-
sity before focusing on business and trading.
As part of the first wave of Millennials to join
the work force, Jonathan started his profes-
sional career almost 15 year ago, joining
ACES Power Marketing as an Operations Specialist, providing de-
mand 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.
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All rights reserved. 6 www.eqstrading.com
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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