Commodity ETF Outlook For 2013

By Cory Mitchell | January 02, 2013 AAA

Commodity prices affect our everyday life and give us clues as to the type of economic times we are in, but now with the use ETFs, you can easily access commodities for the purpose of (hopefully) profiting from them. Commodity ETFs can be volatile, and having both a long-term and short-term perspective will help screen out market noise from important moves. This is especially important when attempting to determine how an ETF will perform over the course of the year. Gold, silver, oil and natural gas all have the potential for major moves in 2013 based on the patterns created, or broken, in 2012.

SPDR Gold Shares (ARCA:GLD) formed an upside breakout from a large triangle that contained the price for much of late 2011 and 2012 and gives a bullish bias for 2013. The target for the breakout is $197 with an interim target at $187 which is just beyond the prior high of $185.85. The target is based on the adding the height of the triangle - approximately $35 - to the breakout price which was near $162. The triangle provides support between $155 and $150, therefore, the ETF shouldn't drop below this level before hitting the profit target. If it does though, it indicates the upside breakout was false and further downside move could develop into the $125 area.

SEE: Triangles: A Short Study In Continuation Patterns

GLD upside breakout

The iShares Silver Trust (ARCA:SLV) also broke out of a large triangle pattern in 2012, which set the stage for a likely bullish trend in 2013. There are two dominant versions of the triangle. One is slightly larger than the other and therefore there are two price targets of $46 and $52. If the first is exceeded by more than a dollar, it is highly likely the price will move the latter target. Strong support is provided by the former triangle between $27.50 and $25; a drop below this level indicates a decline is underway which could head toward $15.

SLV triangle breakout

PowerShares DB Oil (ARCA:DBO) has ranged between $34.57 and $22.07 since mid-2009, but the price range narrowed in 2012 creating another triangle pattern. With a close of $25.94 on December 31, a breakout is not imminent and the price will continue to meander within the patterns for the start of 2013. During the year, a move above $29.50 (will slightly decrease over time as the upper triangle trendline is downward sloping) signals an upside breakout and a move to $40.50. On the other hand, a move below $23.60 (will slightly increase over time) has a target of $12.10 as the downtrend which began in 2008 continues. Long-term charts show an uptrend which completed in 2008, and since oil has been in a bearish environment. Therefore, the bias for 2013 is an oil price - and by extension the PowerShares DB Oil and other major oil ETFs such as the United States Oil (ARCA:USO) and the iPath S&P SGCI Crude Oil Index (ARCA:OIL) - likely to be under downward pressure in 2013. That said, the breakout direction when it occurs should take precedent over current opinion.

SEE: The Anatomy Of Trading Breakouts

DBO triangle

United States Natural Gas (ARCA:UNG) is trading for a fraction of what it was back in 2008 - on an adjusted basis the ETF had a high of $511.12 in 2008 and trades at $18.90 as of the December 31 close. Therefore the fund does not necessarily reflect the price performance of the natural gas commodity over the long-term. There are tradable movements, and it appears natural gas has turned a bullish corner. After reaching a low of $14.25 in April, the ETF made five well defined waves (three up and two counter-trend) which culminated in the October high of $23.38. Since trends move in this five-wave fashion, this appears to be the start of a longer term uptrend. The new support region to watch in 2013 is $18 to $17.50. If the price holds above that level and then moves toward the $23 area, it is a strong signal the next wave of the uptrend is underway. On the other hand, if the price continues to decline, especially below $17 and $16, the selling is likely still not over and the price could continue to make new lows.

SEE: Technical Analysis: Support And Resistance

UNG wave

The Bottom Line
Whether you are looking at trading a gold, silver, oil or a natural gas ETF in 2013, you will likely find opportunities. Gold, silver and natural gas have already made moves which indicate the upward basis for 2013. It is important to remember, of course, that a drop below key support levels could change the bias during the year though. Oil is in ranging mode, and a breakout is required to determine the next major move in the oil ETFs. Longer term charts indicate a bearish bias in oil. ETFs can be traded both on the short and long-side, so whether conditions materialize as expected, or offer surprises, utilize risk management to make 2013 a prosperous year.

Charts courtesy of stockcharts.com

At the time of writing, Cory Mitchell did not own any shares in any company mentioned in this article.

Related Analysis
  1. Time To Take Profits On These 4 Rallying Stocks?
    Chart Advisor

    Time To Take Profits On These 4 Rallying Stocks?

  2. Is Natural Gas About to Tank?
    Chart Advisor

    Is Natural Gas About to Tank?

  3. A Multi-Asset Income ETF For Defensive Investors
    Chart Advisor

    A Multi-Asset Income ETF For Defensive Investors

  4. These Stocks Offer Range-Trading Opportunities
    Chart Advisor

    These Stocks Offer Range-Trading Opportunities

  5. How To Trade Rising Livestock Prices
    Chart Advisor

    How To Trade Rising Livestock Prices

Trading Center