Technical Analysis
The Technical analysis is one of the most important analytical tools we use, as it provides essential timing signals.
The technical analysis is generally updated on a weekly basis, but it is a dynamic process depending on the price action, and thus in some weeks several updates might be necessary.
The exact date of the latest update can be seen at the top of each page. This section is made up of two parts, a short-term and long-term view. The short-term trend shows what is expected to happen with the price in the intermediate future, while the long-term trend shows our expectations for price developments on a longer term. This distinction is important for you to act accordingly.
The conclusion of both trends is illustrated in the middle of the coloured triangle in the overview section, as well as in the top of the short term and long term pages.
The short-term section
The coloured arrow to the right indicates the current short term trend in the commodity price. The first graph presents a forecast of the commodity price.
In our forecasts there is a differentiation between anticipations and signals. Signals are more objective, as for instance a break of the moving average, while the anticipation is how long the new trend will last, and is therefore less objective.
It is important to have this distinction in mind when using Kairos Commodities. A signal is a cause for action and our clear recommendation, whereas anticipation is a price target that is continuously monitored and evaluated.
The technical analysis graph has three segments:
1. The daily prices for the commodity, along with its short and long moving averages.
Orange line: Commodity price.
Thick grey line: Short moving average.
Thin grey line: long moving average.
If the price breaks above the short moving average, it is in a short term uptrend, whereas the price will be in a short-term downtrend if it moves below the short moving average. Lastly, if the price breaks above or below the long moving average, it is a strong warning of the coming long-term trend, but only the long term section can confirm if it is a real signal.
2. The ROC - Rate of Change: This is a mathematical calculation measuring the percentage change in the price from one period to the next. It is designed to give a warning signal before a change in the price trend.
3. The RSI - Relative Strength Index: This is a mathematical calculation that measures the speed and change of price movements. It is also designed to give warning signals before a change in the price trend.
It is important to note that these indicators are only presented as a visual reference, and that the relevant signals will be described in the text alongside the graph.
Hedging recommendation
The hedging recommendation for the short term can be found at the bottom of the page. The barometer indicates whether you should terminate, avoid, consider or initiate a hedge. The text will recommend a duration of the possible hedge, which naturally should be adjusted according to your company policy and risk profile.
The long-term section
The long-term trend section provides an overview of the current long-term trend of an individual commodity's price, including a technical analysis, forecasts and a hedging recommendation. The duration of a long-term trend is 1-3+ years, and thereby has the biggest impact on business. The coloured arrow to the right indicates the current long-term trend in the commodity price.
The technical analysis graph has four segments:
1. The monthly prices for the commodity, along with its long moving average.
Orange line: Commodity price.
Grey line: Long moving average.
If the price breaks above the long moving average, it is in a long term uptrend. Similarly, if the price moves below the long moving average, it is in a long term downtrend.
2. The MACD - Moving Average Convergence Divergence: This is a mathematical calculation measuring the difference between the long and the short moving average. It is designed to spot false signals in the long term moving average.
3. The ROC - Rate of Change: This is a mathematical calculation measuring the percentage change in the price from one period to the next. It is designed to give a warning signal before a change in the price trend.
4. The RSI - Relative Strength Index: This is a mathematical calculation that measures the speed and change of price movements. It is also designed to give warning signals before a change in the price trend.
It is important to note that these indicators are only presented as a visual reference, and that the relevant signals will be described in the text alongside the graph.
Hedging recommendation
The hedging recommendation for the long term can be found at the bottom of the page. The barometer indicates whether you should terminate, avoid, consider or initiate a hedge. The text will recommend a duration of the possible hedge, which naturally should be adjusted according to your company policy and risk profile.
Dynamics of the short- and long-term price trends
There are some dynamics in the timing of the short- and long-term trends.
For instance, it has already been mentioned that a break of the long moving average in the short-term section, is a warning of a similar break in the long-term section.
A general rule is that if both the short- and long-term arrows show the same trend, the short term trend will last longer, usually several months.
Conversely, if the short- and long-term arrows show opposite trends, the short-term trend will last a shorter time, from only weeks to a few months at the most. These shorter trends, are considered to be up- or downward corrections in the price, while still maintaining the overall long-term trend.
However, the duration of the long-term trend is the most important as price trends lasting weeks or a few months are not interesting for companies making long term contracts. The duration of the long-term trend is crucial in an uptrend, as you are committing to 1, 2 or 3 years of fixed price agreements.
Next section: Fundamental Analysis