In active trading, a myriad of different strategies and indicators are used for various situations. One of the most common strategies is to wait patiently on the sidelines when an asset is experiencing a pullback and then to move back in when there are clear signs of a reversal. Trendlines, moving averages and other indicators are useful tools for this task. In the article below we’ll take a look at several commodity charts that are currently showing signs of a continuation of their respective uptrends and try to determine how to best protect against any further selling. (For more, see: The Anatomy of Trading Breakouts).
Precious metals and other hard commodities have experienced consistent selling pressure since prices peaked back in August. One group that have been particularly hard hit is the miners as shown by the chart of the VanEck Vectors Gold Miners ETF (GDX) below. This exchange-traded fund is a favorite of active traders who are looking to trade the fluctuations in gold. Based on the chart, you can see that the price has recently broken beyond the resistance of a bullish flag pattern (shown by the blue circle). The bullish flag is known as a consolidation pattern and is used to trigger the resumption of the uptrend when the price can close above the defined trading ranges created by the sloping trendline. The bulls will likely use the bullish crossover between the MACD indicator and its signal line as confirmation of the breakout, and many will now reset their sights on the 2016-high of $31.70. (For more, see: Gold And Silver Turn Higher Above Key Support).
Copper prices have retraced slightly since news of the U.S. election broke back in November. Anticipation of future infrastructure spending had bulls rushing into positions, and the recent pullback toward key support levels suggest that the price could be gearing up for another leg higher. Based on technical analysis, key levels of support are often found near key levels such as the 50-day or 200-day moving averages. Trends are never created by prices moving in a straight line, and pullbacks toward these levels often give active traders strategic entry points that offer lucrative risk/reward scenarios. In the case of the iPath Bloomberg Copper Sub-Index Total Return ETN (JJC), traders will likely look to enter positions as close to $28.64 as possible and set their stop-loss orders below either the swing low of $28.36 or the 200-day moving average ($25.59) depending on their risk tolerance. (For more, see: Commodities: Copper).
Another commodity chart that active traders will be keeping a close eye on is the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL). Taking a look at the chart below, you can see that an ascending triangle pattern has been forming on the chart and the recent move toward the resistance of $6.50 has bullish traders interested in whether a breakout is in the cards over the upcoming weeks or months. The proximity to the 200-day moving average and sideways price action over the past twelve months is regarded as a period of consolidation and offers traders an ideal entry point on the basis of risk-to-reward. A close above the dotted resistance will likely signal the beginning of a long-term uptrend. (For more, see: Chart of the Week: Impact of Higher Oil Prices).
The Bottom Line
There are many different technical strategies for trading different types of market environments, but trading consolidation patterns such as bullish flags or ascending triangles must be near the most exciting. The clearly identified levels of support and resistance make it clear as to where orders will be placed and based on the charts shown above it seems as though the commodity markets are gearing up for another move higher. (For more, see: 3 Commodity ETFs That Point To Higher Prices)
At the time of writing, Casey Murphy did not own any products mentioned in this article.