Generally speaking, agriculture commodities have made strong moves higher over the past couple of weeks, which has heightened the interest of active traders. Talks of rising agriculture prices have also started to gain traction in more mainstream media, which seems to be acting as a short-term catalyst for the general public to consider investing in the space. However, as the charts below suggest, several looming levels of significant resistance suggest that it will be prudent for active traders to tread with caution over the coming days and weeks.
Invesco DB Agriculture Fund (DBA)
Analyzing niche exchange-traded products such as the Invesco DB Agriculture Fund (DBA) is often the best way for traders who are interested in gauging the future direction of agriculture commodities. Fundamentally, the fund comprises futures contracts on the world's most liquid and highly utilized agricultural products such as corn, live cattle, cocoa, soybeans, sugar, wheat, lean hogs, coffee and others.
Taking a look at the chart, you can see that the rebound from the May lows has been significant and that the next stop is likely near the combined resistance of the dotted trendlines. These levels have proven to hold significant influence in the past, and traders will expect this story to continue. Bulls may want to consider remaining on the sidelines until the price is able to close above the dotted trendlines, which would then confirm a major trend reversal. Until then, the long-term momentum and trend will likely remain in the control of the bears.
Teucrium Wheat Fund (WEAT)
Wheat prices have had a strong rebound since hitting a low earlier this month. As you can see from the chart of the Teucrium Wheat Fund (WEAT) below, the divergence between the moving average convergence divergence (MACD) and the underlying price suggested that a bounce was in the cards. In case you aren't familiar, traders often look for situations where major indicators move counter to the underlying trend of the security because it signals that the price will experience a sharp reversal.
In the case of WEAT, now that a significant bounce has occurred and the resistance of two major trendlines is quickly approaching, the chart suggests that the run may be nearing its end. Followers of technical analysis will want to keep a close eye on the resistance between $5.50 and $5.75 because it will take some extreme buying pressure to change the direction of the longer-term downtrend.
Teucrium Corn Fund (CORN)
Fundamentally, corn prices are exposed to many of the same factors as wheat, which is why the chart of the Teucrium Corn Fund (CORN) looks very similar to WEAT shown above. As you can see, the price is rapidly approaching an extremely strong level of resistance, and traders will be watching closely to see if the bulls are able to send the price above it. Based on past price action, most bearish traders will watch for a pullback near current levels and likely protect short positions by placing stop-loss orders above $16.50 in case the uptrend continues.
The Bottom Line
Agricultural commodities have experienced a sharp move higher over the past couple of weeks, which has triggered many conversations about a more significant run higher. Based on the patterns discussed above, it seems as though there are several technical reasons to expect a reversal from current levels. At the very least, much more conviction will be required on the part of the bulls if they want to see a significant shift in the underlying downtrend.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.