As the weather continues to warm across North America, it is natural for investors to start thinking again about investments in agriculture. Given fundamental factors such as ample supply mixed with relatively low demand, agricultural commodities have experienced a significant amount of selling pressure over the past several weeks. In this article, we'll take a look at the three exchange-traded products that are widely used to track segments of the agriculture sector to determine how traders will want to position themselves over the weeks or months ahead.
Invesco DB Agriculture Fund (DBA)
For many active traders who follow the agriculture sector, there are few more popular funds to watch than the Invesco DB Agriculture Fund (DBA). Fundamentally, the DBA fund comprises futures contracts on some of the most liquid and widely traded agricultural commodities such as live cattle, soybeans, sugar, corn, wheat, coffee and cotton. Taking a look at the chart below, you can see that the bears recently pushed the price of the fund below the trendline of a defined ascending triangle pattern. The breakdown is a clear indicator to active traders that the next leg of the downtrend has begun and that the momentum is now in the favor of the bears. Based on the pattern, followers of technical analysis will likely set their target prices near $15.75, which is equal to the entry point minus the height of the pattern.
Teucrium Soybean Fund (SOYB)
One of the most interesting chart patterns found anywhere in the public markets can be seen on the chart of the Teucrium Soybean Fund (SOYB). As you can see below, the price of the fund recently tested the resistance of its 200-day moving average and failed to break above it. In fact, the resistance was strong enough to turn away multiple attempts to move higher and has led to a break below a key level of short-term support. The move below the dotted trendline on the chart shows that the bears are in clear control of the momentum and that the price could be headed toward the 2018 low of $15.26.
Teucrium Wheat Fund (WEAT)
That last chart we will look at today that will be of specific interest to commodity traders belongs to the Teucrium Wheat Fund (WEAT). As you can see below, the bears were able to send the price below a key trendline, and the selling pressure has yet to cease. With extremely oversold readings on indicators such as the relative strength index (RSI), it wouldn't be surprising to see a bounce toward the newly formed resistance near $5.85. Bearish traders will likely keep a close eye on the chart in hopes to enter a position at a level that offers a much more lucrative risk/reward.
The Bottom Line
Agriculture commodities are coming back into focus after a long and cold winter. Based on the charts discussed above, it seems as though the bears are currently in control of the momentum, and recent price action suggests that traders will hold a downward bias for the next several months.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.