How to Forecast Commodity Markets with Seasonality Using the Forecaster Terminal - Lesson N.3
- Comprehensive Commodity Analysis with Forecaster Terminal’s Tools: The tutorial introduces the Forecaster Terminal’s intuitive interface for analyzing commodities like Gold, offering tools such as the Overview Section, Seasonality Layer, and Commitments of Traders (COT) Reports. Users can explore historical price trends, macroeconomic factors (e.g., inflation, interest rates), and supply-demand dynamics, enabling informed decision-making about commodity market trends.
- Seasonality Analysis for Strategic Trading: The Seasonality Layer helps users identify recurring price patterns in commodities, with Gold as a prime example. By analyzing daily, weekly, and monthly trade statistics over various timeframes (e.g., 5, 10, 20, or 30 years), users can pinpoint optimal periods for long or short trades. For instance, Gold shows a bullish trend from mid-December to early April, with an 80% success rate for long trades over the past 20 years.
- Leveraging COT Reports and Market Sentiment Indicators: The tutorial emphasizes the Forecaster Terminal’s COT Reports section, which provides detailed insights into Gold’s positioning by commercial and non-commercial traders (e.g., Managed Money). Additionally, the Market Mood Meter, a proprietary sentiment indicator, oscillates between fear (-100) and greed (+100), helping users time trades by identifying overbought/oversold conditions and trend reversals through divergences with price movements.
Introduction: A Multi-Dimensional Approach to Stock Market Mastery
Welcome back to the third installment of our Forecaster Terminal master class! In our previous session, we equipped you with the skills to forecast the single stocks using the Forecaster Terminal’s sophisticated tools. If you happened to miss that foundational lesson, fret not – the recording awaits your exploration on our YouTube channel.
Today, we pivot our focus to the very building blocks of the market: Comodities. We will embark on a detailed exploration of the seasonalitz of commodities, and I believe you’ll find this lesson particularly insightful. We will meticulously traverse the diverse array of analytical tools housed within the Forecaster Terminal, specifically tailored for dissecting and understanding the potential future trends of commodities by exploring their past performance. By the end of this session, you will gain a deeper appreciation for how to master this robust software when it comes to making informed decisions about the commodities that drive our economies.
1. Getting Started: Navigating the Forecaster Terminal for Stock Analysis
As you’ve already experienced, the Forecaster Terminal interface is designed for seamless navigation. The familiar search bar at the top allows for quick access to any financial instrument—including individual stocks, commodities, cryptocurrencies, and much more. Additionally, the menu bar provides access to the full range of analytical tools available within the software.
This dual entry point supports both targeted analysis and exploratory research, mirroring the intuitive, user-friendly experience of using Google.
Whether you’re looking to analyze a specific commodity like Gold, explore single stocks such as Microsoft, or seek broader investment ideas within a particular sector, the Forecaster Terminal offers two distinct yet equally effective paths to start your journey. The choice, of course, depends entirely on your specific analytical goals at any given moment.
To illustrate the power of the Forecaster Terminal in analyzing commodities, let’s take a deep dive into one of the most well-known and widely traded assets: Gold. (Check out gold on the Forecaster Terminal)
As with all instruments on the platform, the analysis of Gold is structured across multiple distinct layers, each offering a unique perspective on its market behavior and future potential. These layers include:
2. Overview Section
Providing a comprehensive snapshot of historical price action across multiple timeframes, this section allows you to clearly observe the impressive returns that this commodity has delivered over the years.
Years Performance: Here below you can see the data for the percentage increase from the first to last trading session of the calendar year.
Forecaster AI Agent: The Forecaster AI Agent features a powerful tool called “What’s Happening”, which allows users to explore various aspects of a commodity.
Starting with its Price Analysis. The Price Analysis section includes a dedicated Recent Price Trends tab, providing a quick and insightful overview of the commodity’s latest market movements. It also presents the historical trend of the commodity’s price along with a contextual overview that helps users understand the broader market dynamics driving those movements.
Go deeper: The ‘Go deeper’ option is an option given to users when analyzing the overview section. The further statistics comprise:
- Macroeconomic Factors
- Supply and Demand
- Geopolitical Events
- Investor Reactions
- Government Reports
In the case of Gold futures we can read very interesting information
Macroeconomic Factors:
- Global Economic Variables: Economic uncertainty stemming from fluctuations in growth rates across major economies can drive investors toward safe-haven assets like gold.
- Inflation: Elevated inflation rates typically increase gold’s allure as a hedge against currency depreciation.
- Interest Rates: Low interest rates diminish the opportunity cost of holding gold, enhancing its attractiveness as an investment.
Supply and Demand:
The balance of supply and demand for gold significantly impacts its pricing:
- Production Levels: Gold mining production may fluctuate due to operational challenges or policy changes.
- Consumption: Demand across sectors, including jewelry and investment, influences overall market stability.
- Available Stocks: The stockpile of gold reserves held by central banks and investors also plays a crucial role in assessing market surplus or deficit.
Geopolitical Events:
Geopolitical tensions and conflicts can have immediate and lasting effects on gold prices:
- Political Conflicts: Heightened tensions in key regions can increase demand for gold as a safe haven.
- International Agreements: Trade agreements or sanctions impacting gold-exporting nations may alter availability in global markets.
Investor Reactions:
Market operators tend to react diversely to these dynamics, often increasing their holdings in gold during periods of uncertainty or market volatility.
Government Reports:
3. Seasonality Layer
Before diving into the Seasonality layer, it’s important to recall a key concept introduced in the previous lesson:
Seasonality is particularly useful for identifying recurring patterns in an instrument’s price movements across various historical timeframes.
While seasonality is commonly associated with commodities, to the point that many believe it only applies to assets like oil, gold, or agricultural products, this is a misconception. In reality, seasonality can be observed across nearly all market instruments, including stocks, indexes, and even currencies.
With this in mind, let’s continue our example with Gold.
The first step using the Forecaster Terminal is to visually identify strong seasonal trends and select a timeframe aligned with your chosen strategy—whether you’re planning a long or short position.
We can surely notice that the period starting from mid-December till the first week of April shows a particularly bullish trend. If we watch what happened in the last 20 years (the timeframe with the highest historic correlation to current prices) we can notice interesting returns:
Actual prices since the start of the year have fluctuations resembling the 20 years average with a correlation of 91%. In the last twenty years this period has succeeded for long trades 16 years out of 20 (80% of success rate) and has yielded in average 10,7%.
Daily, Weekly and Monthly Averages: Another interesting part of the Forecaster Terminal’s Seasonality page when analyzing a single stock is the average of trades over different time frames, users can find the average trade statistics over all the previously mentioned time frames.
4. Overbought & Oversold
The Market Mood Meter is a powerful indicator that measures market sentiment, oscillating between two extreme emotions: Fear (Panic Selling) and Greed (FOMO). Inspired by CNN Business’s Fear and Greed Index, it can be applied to any financial instrument by averaging three statistical/mathematical indicators from the Overbought/Oversold section: the Forecaster Advanced DPO, Wyckoff Causes/Effects Indicator, and Speed Indicator.
Using the Market Mood Meter as a Sentiment Indicator
The Market Mood Meter ranges from -100 to +100, reflecting investor sentiment:
-100: Extreme Fear (Panic Selling) – Investors are highly pessimistic, often indicating markets are near a bottom.
+100: Extreme Greed (FOMO) – Investors are highly optimistic, often signaling markets are near a top.
Using the Market Mood Meter as a Timing Indicator
To use the Market Mood Meter for timing trades, monitor when the indicator enters overbought or oversold territory. Wait for a divergence to form between the price and the oscillator (e.g., points A-B on the chart below). When the Market Mood Meter crosses the zero line, it indicates a high probability of a correctly identified trend reversal.
5. Commitments of Traders reports
As reported by www.cftc.gov,“The Commodity Futures Trading Commission (Commission or CFTC) publishes the Commitments of Traders (COT) reports to help the public understand market dynamics. Specifically, the COT reports provide a breakdown of each Tuesday’s open interest for futures and options on futures markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.”
Commercial traders on the other hand are a category that comes from the legacy COT. It includes producers, merchants, processors and users of the physical commodity who manage their business risks by hedging. It has also included swap dealers that may have incurred a risk in the over-the-counter (OTC) market and then offset that risk in the futures markets, regardless of whether their OTC counterparty was a commercial trader or a speculator. Those two categories of what has been reported as “commercial” traders are separately reported in the Disaggregated COT.
A “Producer / Merchant / Processor / User” category is an entity that predominantly engages in the production, processing, packing or handling of a physical commodity and uses the futures markets to manage or hedge risks associated with those activities.
Swap dealers are commercial traders too, these partecipants are entities that deal primarily in swaps for a commodity and use the futures markets to manage or hedge the risk associated with those swaps transactions. The swap dealer’s counterparties may be speculative traders, like hedge funds, or traditional commercial clients that are managing risk arising from their dealings in the physical commodity.
