Is Now The Time To Buy Commodities?

By Casey Murphy | June 26, 2014 AAA

For active traders thinking about investing in commodities now could be the time. As you can see from the chart below, the price of the iPath Dow Jones-UBS Commodity Total Return ETN (DJP) has recently bounced off its 200-day moving average (shown by the black arrow). The bullish long-term buy signal is being confirmed by the MACD indicator crossing above its signal line. These two technical buy signals along with a rising RSI indicator suggests that commodity prices could be heading higher over the months ahead. Aside from the technical chart patterns, price movements of major underlying commodities are also suggests that a move higher is likely in the cards (For more information, see: Commodities: An Introduction)

Looking at the Components

For those traders unaware of the DJP exchange-traded note, this instrument was to provide traders with exposure to the Dow Jones-UBS Commodity Index; which reflects returns available through unleveraged investments in futures contracts of underlying commodities, such as agriculture, energy, grains and industrial metals.

Taking a close look at the chart of the PowerShares DB Multi-Sector Commodity Trust Agriculture Fund (DBA), which tracks the performance of corn, wheat, soy beans and sugar, it appears that the agriculture commodities are playing a strong role in the recent upward momentum of the general commodity complex. (For more on this topic, see: Commodities: The Portfolio Hedge)

Based on the chart blow, recent bullish technical signals, such as the crossover of the MACD above its signal line, suggests that the momentum is on the side of the bulls. Confirming indicators such as the Fast Stochastics and the Relative Strength Index suggest that we could see a move toward the recent swing high of 29.41 over the weeks ahead. 

Energy Helping Send Commodities Higher

Violence in Iraq is one of the key catalysts that has been sending prices of petroleum products higher over the past few weeks. As mentioned in a recent article, based on the recent break above key resistance levels on key charts, higher prices over the summer months will likely continue. In addition, the chart of the Guggenheim S&P 500 Equal Weigh Energy ETF (RYE) is also confirming that higher energy prices are likely in our future. As you can see from the chart below, the ETF is currently trading near all-time highs, and there aren't any short-term technical signals that suggest that the momentum should reverse any time soon. (For more, see: A Look At Commodity ETFs)

Bullish Signals In Industrial Metals

As you can see from the chart of the iPath Dow Jones-AIG Industrial Metals Total Return Sub-Index ETN (JJM), which tracks the movements of copper, aluminum, nickel and zinc, the 50-day moving average has recently crossed above the 200-day moving average (shown by the black arrow). This long-term buy signal suggests that this group of metals is poised for a move higher, and will likely help contribute to a rise in the overall rise of DJP mentioned above.

The Bottom Line

Based on the charts of key components of the iPath Dow Jones-UBS Commodity Total Return ETN, such as agriculture, energy and industrial metals, it appears that now is the time to invest in commodities. The close proximity of key moving averages suggests that current levels provide interesting risk/reward ratios for astute traders. (For more on this topic, see: How To Invest In Commodities

 

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