Markets Situation: Commodities, Wheat, Energetics...

by Andrea Unger

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The conflict between Russia and Ukraine continues to cause very high levels of volatility on the markets, with sharp falls for European stock exchanges and significant rises for commodities.

With the exception of the meat sector, all the other sectors have recorded significant increases, especially the energy markets and wheat, which are obviously more closely linked to the countries involved in the conflict.

The operators' concern is starting to be felt, with Vix levels that have reached 34 points and the volatility term structure that has entered into backwardation.

To learn more about the markets' performance during this difficult period, and to know the details related to volatility, check out our weekly overview now!

Enjoy the video!

Transcription

Hey everyone and welcome back! 

One of the coaches of Unger Academy here, and this is our usual chat we have on weekends about the markets trends.

So this was a really very hectic week for the markets, obviously due to the conflict between Ukraine and Russia. This week was characterized by very high volatility on all markets, especially on commodities. Not so much on the American stock indexes, but the European markets suffered a lot more.

So, let's go in order and start off with the indexes themselves. Right now, we see the Nasdaq, which is losing 2.30% at 5 days.

The Mini S&P is doing a little better, about -1.80%.

As you can see, however, the European stock exchanges have lost around 8, almost 9% over the last week, precisely because they are closer to the conflict zone and therefore there's greater tension on these markets.

The volatility on the short term is really very high, and you can also see it from the standard deviation chart. So, we're really on very high levels, both on a monthly basis and on a yearly basis. And this is obviously just a temporary situation, and so from here to the market close anything could really happen.

If we take a look at the American stock indexes, in particular the Mini S&P 500, the situation appears less dramatic than we might expect. It's true that here we can see high values of historical volatility, but on the whole, if we compare the trend of the last two weeks with what's happening in the real world, the drop of these markets has been quite moderate, especially if compared to the commodity markets.

Let's now turn to the bonds. Let's look at the returns on the T-Bond, which correspond to 3.38%. Also, the American Treasury, the 10-year bond, is doing well: 1.84%. The European Bund did not fare as well.

Obviously when there are high tensions on the stock indexes, like in the week we've seen, it's quite normal to see the bons market go up because it serves somewhat like a safe haven for investors.

But now let's turn to the possibly most problematic sector of all, energy. So, as you can see, all the energy futures have risen dramatically this week.

Specifically, we have got Heating Oil growing by 30%.

+23% for Crude Oil and +19% for Gasoline.

Natural Gas, instead, is bit further back and gains "only" 9%. Obviously, this is the American natural gas because if we look at what is happening in Europe, we have a completely different picture. This is the European Natural Gas. Look at the upswing from the start of the war until today.

The entire metals sector has also gone up. In this chart we see Silver rising by 6% this week. 8% for Copper, while Gold and Platinum are a little further back. However, the entire metals sector, which also serves as a safe haven asset, has risen due to the conflict.

The meat market is the only possibly negative market this week.

Soft Commodities also rose. In particular Sugar and Orange Juice.

Finally, let's move on to the market that is probably the most affected one, along with the energy sector, and that's the Cereals market. Let's look at Wheat, which is on its all-time highs now. It has been suspended at the moment, here it is, for a "limit up", so an excess of gains. Actually, in 5 days it rose by 40%. Corn also went up a lot, while soy derivatives went up a little less.

Finally, let's take a look at the currencies, where we also see some very important movements. Here's the Euro-Dollar future. As you can see, during the week it fell to 1.09. A week ago, it was around 1.12, so it really went down a lot in just one week.

Finally, we have the cryptocurrency market, rebounding slightly by +4.5%, but remaining more or less at the levels that we've seen in recent months.

The state of the markets is indeed very volatile. Between now and the closing, the overall picture could almost be turned upside down.

For the sake of completeness, let's also take a look at implied volatility and its term structure, which is currently in backwardation. 

We have quite high Vix values around 34. So, there is starting to be a fair amount of concern among traders. Until now the volatility markets had shown signs of uncertainty and fear, but at the moment the situation is getting worse, and although we aren't witnessing a real panic yet, we need to closely monitor the markets because the picture could change very quickly indeed.

So, my advice is to use caution, use common sense. This is a particular situation. And above all, I'm referring to those trades involving volatility derivatives or options, so options selling because this is certainly not the ideal time to go short selling and take excessive risks.

Let's move on to the rollover calendar. We are still far from the third Friday of the month, but you know that the American futures are rolled a week in advance, so next Friday it will be possible to rollover on the American stock indexes and also, a few days in advance, on the Vix future.

Finally, guys, for those of you who want to learn more about systematic trading and understand a little better what it consists of, I'll leave a link in the description of this video. You’ll find it very useful. There's a presentation of our founder Andrea Unger introducing you to this world and just so much more.

Before saying goodbye, I kindly ask you to leave us a Like if you enjoyed this video and subscribe to our channel. Thanks so much!

And I will see you next week!

Bye-bye!

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Andrea Unger

Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.

I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems. 

In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.

Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.

Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.