Commodities are a Bubble ???

Written by admin

July 14, 2022

Commodities: Risk or Opportunity?

 

The Trusted Data team have been monitoring the commodity market quite a lot recently and  last month we went about back-testing short term trades across energy and also soft commodities, primarily related to the Food processing sector.

This equity class has caused all sorts of issues for the broader financial market post-Covid. 

The pre-Christmas 2021 surge in oil, supported by long term upside trends developing in various soft commodities (between Autumn 2020 and Mid 2021), which really picked up pace in the first half of 2022, wreaked havoc on market inflationary expectations and projected interest rate counter-measures. Tech got hammered in the process…. In January 2022, our models initially projected a Q1 to Q2 2022 fall in Nasdaq 100 from 16500 to 12600-12800, but the tech fallout did not stop there. The Tech / Commodity trade-off sits in a very interesting situation right now.

The volatility in Commodity price swings, intra-day / week, are significant. This presents a very interesting trading opportunity but one laced with risk if you enter trades too late, with commodity price trends developing and following through much quicker than indexes and company stocks.

On our initial trading results we see huge potential in this equity class but it must be handled very carefully given the channel volatility and be backed by robust models and solid entry points, to safeguard margin requirements.

Pilot Results

Trading period:                                                        15 days

Commodities:                                                           US Crude, Natural Gas, Wheat, Arabica Coffee, Soybean Oil, Cocoa

Total trades:                                                             53

Closed trades:                                                          53

Closed trades in profit:                                           53

Outstanding Open trades:                                     0

% return (profit / margin requirement):              17.2%

Ave.commodity price change traded:                  1.86%

Ave. trade length:                                                    1.8 days

Whilst we are now trading selected commodities live for own fund, we see huge potential to assist corporates (within < 2-4 weeks) in projecting commodity price movements in the near and mid term (1 day – 3 / 6 months) to reduce commodity spend and assist procurement / treasury functions in becoming genuine innovators and value creators in supply chain, at a time when commodity prices have been a major disruptor for companies in sectors such as manufacturing and consumer goods.

If you are interested to find out more about collaborating with us in this exciting space, please get in touch with the Trusted Data Technologies team (info@trytrusted.com)

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