Mid-winter is often when agricultural products get overlooked by most retail investors. However, based on the bullish chart patterns developing on key exchange-traded products, which we’ll discuss in the article below, it could be a prime time to start thinking about establishing a position. (For more, check out: A Primer For Investing In Agriculture).
PowerShares DB Agriculture Fund
For those new to commodities trading and looking to establish a position, one of the most popular funds to consider is the PowerShares DB Agriculture Fund (DBA). This fund is comprised of futures contracts on the most liquid and widely traded agricultural products such as live cattle, soybeans, wheat, sugar, corn and coffee. Taking a look at the weekly chart below, you can see that the bears have been in control of the long-term momentum since early 2014. The sideways price action over the past year is a sign that a base is forming and that a reversal could be in the cards. Active traders will likely keep a close eye on the dotted trendline near $19.60, which looks like it should continue to prop up the price in cases of a significant pullback. From a risk management perspective, traders will look to maximize their risk/reward ratios by setting their stop-loss orders below the trendline and set their targets near the 2016-high of $23.01. (For more, see: Invest in Agriculture Majors with Powershares).
Teucrium Soybean Fund
Active traders can often spend hours upon hours scouring the markets for well-defined chart patterns. A favorite of many traders is the symmetrical triangle pattern because the converging trendlines create defined entry points. Bulls to this pattern to work by setting their buy-stop orders directly above the upper trendline because a close above is a signal of a breakout and can lead to a flood of buying pressure. As you can see from the chart of the Teucrium Soybean Fund (SOYB), this scenario of trading a triangle pattern is playing out, and the recent push toward the trendline has technical traders believing that the odds of a breakout are in favor of the bulls. The recent crossover between the MACD and its signal line (shown by the blue circle) could be used as early confirmation of a move higher and may choose to anticipate the move by taking a position before an actual breakout. Stop-loss orders will likely be set below the combined support of the lower trendline and the 200-day moving average because a break below $19.39 will likely trigger a sharp move lower. (For more on this topic, check out: Triangles: A Short Study In Continuation Patterns).
Teucrium Wheat Fund
Another agriculture fund that active traders will be keeping an eye on is the Teucrium Wheat Fund (WEAT) because it is trading near the resistance of a long-term descending trendline. Notice how this level has consistently prevented the price from heading higher since the early days of 2014. Active traders generally like to take note of these long-term trendlines because a close above will signal a reversal of the long-term trend. Based on the bullish charts shown above, there could be enough positive momentum in the industry to reverse the trend in wheat, but only time will tell for sure. (For more, see: Commodity ETFs Near Buy Levels).
The Bottom Line
During the winter months, agricultural products are nowhere near the list of things that most traders are paying attention to. However, based on the chart patterns shown above, it appears as though the sideways price action that has dominated the trend over the past year or so could be coming to an end and that higher prices could be in the cards. (For more, see: The Industry Handbook: Agriculture).
At the time of writing, Casey Murphy did not own any of the products mentioned.