See important disclosures on last page 1 www.eqstrading.com

SIGNALS

What a week for the books! To say last week

was historic is an understatement. Monday

morning started with #BlackMonday as eq-

uitiy traders and the bots drove the Dow

down over 1,000 points at the open, only to

rally back during the day and eventually lose

it again, closing down 588 points. Overnight,

the Chinese government lowered rates and

reserve requirements which rallied the equi-

ties market only to be squashed again at the

bell, setting up the 6th down day in a row for

the Dow Jones Industrial

Average.

The world was magically

saved on Wednesday as the

Dow flew up 609 points,

with the rally continuing to

finish out the week as the

Chinese were up to more

tricks on Thursday when

their government starting

buying shares of large Chi-

nese corporations. The

market whiplash spilled

over to the commodities

market as oil and products

took a beating, with WTI

falling below $38. Then on

Thursday, oil made a historic rebound and rose over

10% in one day!

The Wild, Wild West? More like the Wild, Wild Far

East!. We have been talking about China for months

(see our June Newsletter “EQS Continues to Watch

China as the World Watches Greece”), but it is not

just China, it is Japan, and it spills over into all of

Asia, and then there are those caught between the

Mid-East and Russia that are feeling the pain from

low oil. The world is not healthy and the fear of what

is coming is driving volatility.

Due to the turmoil, the market

now thinks that a September

rate hike is off the table. We

wrote about the Chinese Bag of

Tricks on August 17th, but not to

be outdone by the magic of our

communist friends the Fed re-

vised American Q2 GDP up on

Thursday.

The Bureau of Economic Analy-

sis (BEA) reported that "The

GDP estimate released today is

based on more complete source

data than was available for the

'advance' estimate issued last

month. In the advance esti-

mate, the increase in real GDP

was 2.3 percent.

The Wild, Wild West

-Open energy positions gained an average of 1.95% last week

-Open energy positions have gained an average of 23.11% Since 7-13-15

**You can achieve these re-sults with discipline and by following the EQS daily trade recommendations and using the daily EQS Stop Loss guid-ance

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

The Wild West 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 10 August 31. 2015

A Weekly Publication on the Commodity Markets

TM

See important disclosures on last page 2 www.eqstrading.com

With the second estimate for the second quarter, nonresidential fixed investment and private inven-

tory investment increased. With the advance estimate, both of these components were estimated to

have slightly decreased."

With the revision of the GDP and the strange behavior in the value

of the dollar, the gold market, and the oil market we think that trad-

ers should pause and consider that a rate hike may not be off the

table. The growth of GDP was fueled by autos and housing, both

things that would likely cool with a rate hike.

The BEA went on to report that economy was growing at a 3.70%

annualized rate, up +1.38% from their previous estimate and up

+3.06% from the first quarter. This report included significant up-

ward revisions to the growth rate contributions from commercial

fixed investment (revised upward +0.52%), inventories (up +0.30%)

and government spending (up +0.33%). Consumer spending was

revised upward a more modest +0.13%, and the net impact of ex-

ports and imports was also revised upward +0.10%.

We have been looking for clues from Yellen on when liftoff is going

to occur, and as we reported on August 24th, we are getting mixed messages from members of the

Fed Board that are talking to the media and giving speeches. The mixed message from the Fed is

concerning, but reading between the lines it would seem that the Fed wants to find a way to raise

rates, and traders want to make sure that the Fed kicks the can down the road.

Fear makes for

irrational deci-

sions and as

news is re-

ported that

lowers the

probability of a

rate hike, equi-

ties rise and oil

rallies, which

takes money

back out of the

pockets of

Chinese, Japa-

nese, and

American con-

sumers, and

into the pock-

ets of produc-

ers. Back on

July 27th, we asked the question, “Are Commodities Pointing to a Global Recession?,” and the answer

for emerging markets is “yes”, and for developed markets is “maybe not” as consumption of cheap

commodities is a good thing. Another way to slice it is those countries that depend on exporting com-

modities as a source of revenue are negatively impacted and those that consume commodities will

benefit.

An increase in the Fed funds rate is not the medicine that is needed to stop the spread of recession

flu. After reflecting on the true turmoil of last week’s market, it was not the volatility and wild swings

in prices that is concerning, it is that the case to raise the Fed funds rate increase did not weaken.

The Wild, Wild West is here and now, and the gun battle is about to be taken to the street for a draw

at high noon.

TH E W I L D , W I L D WEST . . . (C O N T . )

With the revision of the

GDP and the strange

behavior in the value of

the dollar, the gold

market, and the oil

market we think that

traders should pause and

consider that a rate hike

may not be off the table.

See important disclosures on last page 3 www.eqstrading.com

Nothing more than short covering... This is a statement made by many analysts that Thursday’s historical

10% price increase (and Fridays 6% increase) in crude oil was nothing more than traders booking end of

month profits since prices have declined $23/barrel (almost 40%) since mid-June. For those of our readers

needing clarification - shorting crude is a way that traders profit by declining prices and short covering

means that traders are buying the contracts back after a period of time to close their short position. There

is validity to this “short covering” claim by analysts as EQS was also booking profits since shorting oil in July

(See page 4 of the July 13th Issue of Signals when we first announced our short position) when crude was in

the $50’s. Furthermore, as seen by the chart below, bets by financial investors that oil prices would fall

were at their highest level since April, according to the most recent data from the US Commodity Futures

Trading Commission.

Could there be some substance behind this rally

or is it truly just “short covering”. EQS believes

there are several catalysts for this reversal that

are real, indeed. First of all, quoting from last

week’s Signals, “watch for signs of sustainable

production declines along with stability in the

global equities market...and we should see signs

of a reflection point in oil prices. “ Well, guess

what happened this week? Production showed a

decline in the EIA report and global equities

staged a comeback. Adding fuel to the fire on

the oil rebound was the US reporting a strong

upward revision in GDP to 3.7%, which trans-

lates into increased demand for oil. When oil

prices are lower, the economy benefits to the

extent people have more money in their pocket to spend and consequently, industrial output tends to in-

crease which increases oil demand. EQS believes this is exactly what’s happening as the attached chart

illustrates how changes in oil demand relate to the economy in terms of industrial production and personal

consumption expenditures.

Another indicator we mentioned in last week’s report was how the indirect relationship between the DXY (US

Dollar) and crude is beginning to decouple. Crude oil prices have been shifting to relating to the S&P index,

which confirms EQS’s thesis of how stability in the global economy is impacting oil prices. On last Friday

and Monday, the crude price decline

began escalating when the market real-

ized that in order to get out of the current

supply glut, we need oil demand, and if

the economy is sinking, there will be no

demand to absorb the supply so the

price decline snowballed. However, as

soon as the China market showed some

resiliency and the US received that up-

ward revision on GDP, the bulls broke

loose and a fierce stampede drove up

prices 20% for the week!

So, have oil prices bottomed and is this

rebound sustainable? Possibly and EQS

believes the recent rally was more than

massive short covering. Growth in the

economy is a major driver of a possible

price rebound. Although production did decline in last week’s EIA report and it appears to be plateauing,

there is not enough data to suggest the decline is sustainable at this point as rig counts have begun to

creep higher again. Furthermore, it is possible that the Iran nuclear deal could result in sanctions being

lifted early next year. However, on the flip side, there have been rumors of OPEC calling an emergency

meeting and if OPEC does cut production or congress votes against the Iran deal, a sustained price rally

could continue. A final consideration is that Ray Dalio (Founder of Bridgewater, the world’s largest hedge

fund) stated in a recent note to clients that he believes the Fed’s next move would be loosen monetary pol-

icy, not tighten it. If Mr. Dalio is right and QE4 does occur soon, watch out as oil prices would likely surpass

$75/barrel within the next year. For now, EQS stays short. Keep an eye out if WTI is able to settle above

$47/barrel, as this is a strong resistance level— if this occurs, it could be a sign the tides are turning for oil!

MOR E THAN JU ST SHO RT COV ERI N G

Oil and Refined Products

Bearish

Oil prices

rebounded 20%

from the lows

reached on

Monday

150,000

170,000

190,000

210,000

230,000

250,000

270,000

35

40

45

50

55

60N

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f Fu

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on

trac

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$/b

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Look at the Shorts Climb While Crude Prices Dive

Speculator Short Contracts WTI Average Weekly Price

See important disclosures on last page 4 www.eqstrading.com

Since crude oil has set the stage for a possible

rebound, does this mean its time for the natural

gas bulls to get excited? Maybe and maybe not.

Natural gas and crude oil are alike and different in

many ways. Although oil and natural gas can be

classified as energy commodities, they behave

entirely different at times. For example, unlike

oil’s collapse this summer, natural gas has re-

mained range bound. Also during the financial

crisis, oil prices staged a strong rebound where

natural gas prices rose but not to near the levels

as once before.

Natural gas and oil are similar in that they are

both fuels that can be substituted to some extent.

We have discussed in past issues of Signals how

cheap clean natural gas is stealing market share

from coal in the power generation sector. It is

also true that natural gas has been stealing mar-

ket share from oil in the power sector. There has

been a major shift in the past 5 to 10 years to

replace No. 6 oil baseload units with new clean

burning natural gas power generation facilities.

Additionally, utilities have power generation that

are duel fueled and can flip between natural gas

and diesel fuel. Although diesel fuel prices have

come down with oil, diesel is still over 3 times as

expensive as natural gas on an equivalent mmbtu

basis – see attached chart.

In addition to fueling power generation, another

similarity between oil and natural gas is they are

produced together. This has been one of the key

factors crippling the natural gas market over the

past year. Although some wells are designated

“oil wells”,

they might

produce

mostly oil

but natural

gas is also

produced.

So even

though the

market is

oversup-

plied at

times with

natural

gas, if oil

prices are

high (like

they were

last sum-

mer), pro-

ducers will keep producing oil at the expense of

natural gas, even if natural gas is oversupplied.

This is exactly what was happening earlier this

year even as in some cases, natural gas was

flared as it was so abundant it cost more to trans-

W I L L N AT U R A L G A S F O L L OW O I L H I G H E R ?

Bearish

Natural Gas

port it to use rather than dispose of it. How-

ever, the market dynamics are different now in

that both oil and natural gas rigs have declined

so natural gas has a fighting chance to balance

supply.

One key difference between natural gas and oil

is how they are traded internationally. You

can’t just put natural gas on a tanker and send

it overseas like diesel fuel or gasoline… You

need to convert it to LNG first. As mentioned in

last week’s Signals, another bullish factor for

natural gas is the start-up of many natural gas

export (LNG or Liquefied Natural Gas) facilities.

This will enable the US producers to balance

oversupply by exporting natural gas to other

countries. One key risk to the success of these

LNG projects is the price of oil, as historically

LNG contracts have been linked to oil. In

2014, spot LNG prices when oil was over $100

were close to $20/mmbtu in Asia compared to

$4.50/mmbtu at Henry Hub. But because oil

prices have collapsed, LNG spot prices are see-

ing their lowest levels around $7-$9/mmbtu.

So time will tell if the market dynamics will al-

low many of the LNG projects proposed in the

US to come online as expected.

Although EQS remains bearish for the near

term, the supply picture has some longer term

catalysts in motion that could be game chang-

ers and break us out of the ranges we have

seen during the past few years. As such, those

eager for long exposure could find value in the

forward curve. As mentioned last week, a front

month settle above $2.95/mmbtu could tempt

the bulls to plow through those bears once and

for all!

One financial risk to

the LNG export

projects in the US is

the collapse of oil

prices.

See important disclosures on last page 5 www.eqstrading.com

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 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.

See important disclosures on last page 6 www.eqstrading.com

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: JL@EQScapital.com

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