Commodity traders have reason to question the validity of recent uptrends because chart patterns on key commodity-related exchange-traded funds have started to break below major levels of support. While many technical traders have been betting on a run higher over the past several months, mainly due to increased uncertainty in the global markets and increased infrastructure spending at home, it appears as though the market is suggesting this story might not take shape. In the article below we’ll take a look at the charts and try to determine what's in store for the weeks ahead. (For more, check out: 3 ETFs That Suggest Commodities Are Headed Lower).
PowerShares DB Commodity Tracking Fund
Active traders have been tracking the uptrend on the chart of the PowerShares DB Commodity Index Tracking Fund (DBC) for the past several months. Based on the chart below, you can see that the combined support of the 200-day moving average (red line) and the dotted trendline have consistently propped up the price on attempted sell-offs since early 2016. From a technical perspective, the recent close below the identified support levels suggests that the bears are taking control of the direction. Given the broad exposure of the fund’s holdings to fourteen of the most widely traded commodities, it appears as though the broad commodities market could be readying for a continued sell-off. (For more, see: Commodities Introduction).
When the sentiment in the broad markets turns toward uncertainty, many investors tend to flock to hard assets such as gold. While many gold bugs expect prices to rise over the short and long-term, the charts are currently suggesting otherwise. As you can see from the chart of the VanEck Vectors Gold Miners ETF (GDX), the price fell below the support of the 200-day moving average in late 2016 and hasn’t been able to make a move back above given the strong resistance. Active traders will note that the bearish crossover between the 50-day and 200-day moving averages back in November was a clear long-term sell signal known as the death cross. This common sell sign triggers the beginning of a long-term move lower, and the recent failed attempt to break above the 200-day moving average confirms that the momentum is in favor of the bears. Moving forward, active traders will continue to expect the sideways-moving 200-day average to act as a barrier to significant gains. Technical traders will likely set their target prices near the swing low of $18.58 and protect against the chances of a major shift in sentiment by placing stop-losses above $25.75. (For more, see: 5 Charts That Suggest Gold Stocks Are Headed Lower).
Even agriculture and soft commodities look poised to make a move lower in coming weeks. Based on the chart of the PowerShares DB Agriculture Fund (DBA), you can see that the 200-day moving average has consistently acted as resistance since late-summer 2016. Based on the chart, traders will continue to face selling pressure and many bears will likely maintain their outlooks until the price closes above the 200-day moving average for several consecutive trading sessions. (For more, see: Agricultural Stocks May Head Even Lower).
The Bottom Line
The price action of major commodities appears to be in control of the bears and the charts suggest that this story isn’t likely to change for a while. Most active traders will likely proceed with caution when entering long positions and many may even choose to wait on the sidelines until the prices can close above the mentioned resistance levels. (For more, see: Trade The Move In Commodities With These ETFs).