Traders of agricultural commodities have seen a strong rebound in prices over the past several months. While adverse planting conditions led to a slow start of the growing season, shifts in supply and demand estimates have some traders betting on a rebound. In the paragraphs below, we'll take a look at several charts from across the agricultural commodity market and determine whether it is too early to bet on a reversal of the primary downtrend.
Invesco DB Agriculture Fund (DBA)
When followers of technical analysis look to get a sense of a sector or market segment's overall trend, they generally turn to tools such as long-term moving averages and trendlines. The most popular fund that is used to gain a sense of a broad basket of the world's most liquid and important widely traded agricultural commodities, such as live cattle, soybeans, corn, cocoa, sugar, wheat, and coffee, is the Invesco DB Agriculture Fund (DBA).
As you can see from the chart below, the bears have been in control of the momentum for most of the past two years. Active traders will want to note how the 200-day moving average (red line) has prevented the price from moving higher on each attempt to break above. While the gain since September is positive for bullish traders, the proximity of the descending trendline and the 200-day moving average should be enough of a warning that prices could struggle to move higher from here. Bullish traders may want to remain on the sidelines until the price is able to make several consecutive closes above the aforementioned resistance levels before betting on a significant move higher.
iShares Global Agriculture Index ETF (COW)
Another popular exchange-traded product that is used to analyze the agriculture sector is the iShares Global Agriculture Index ETF (COW). Based on the pattern shown on the chart below, some bullish traders may be looking at the breakout above the descending trendline as a leading indication of a move higher.
However, as described above, this long-term level of resistance is often used to gauge the direction of the major trend, and the downward slope suggests that the bears are technically in control. As discussed above, the proximity of the resistance of its 200-day moving average and major trendline should not go unnoticed, and these factors could prove to be the barriers that prevent a shift in the long-term downtrend.
Teucrium Soybean Fund (SOYB)
One of the top holdings of the DBA ETF is a position in soybeans. Taking a look at the chart of the Teucrium Soybean Fund (SOYB), you can see that the price was able to move above the 200-day moving average, which stands as an anomaly compared to the rest of the sector. Before betting on a move higher, bullish traders will likely want to keep a close eye on whether the price is able to break above the psychological resistance of the $16 mark, which also happens to align with an influential horizontal trendline.
The Bottom Line
Rising prices over the past few months have triggered a renewed interest in agricultural commodities by some traders. However, based on the patterns discussed above, it appears as though betting on a move higher from here may not be prudent and that nearby resistance levels could prevent the bulls from changing the direction of the long-term downtrend.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.