Investors and active traders alike have benefited from extremely strong uptrends over the past several years, but this story now seems to be changing due to the bearish price action that has dominated the charts of commodities and nearly every other corner of the public markets. Many active traders are looking at the market weakness as a sign of systemic weakening and likely expecting the highlights shown below to mark the early stages of a long-term downtrend.

iShares Commodities Select Strategy ETF (COMT)

When active traders look to gauge the direction or momentum of a segment of the public markets, they often turn to popular funds such as the iShares Commodities Select Strategy ETF (COMT) and indicators such as moving averages and trendlines as guides. Long-term levels of support and resistance are commonly used by both institutional and retail traders for setting the placement of their buy and stop orders, and these levels are often quite reliable due to smoothed-out nature of the data.

Taking a look at the chart below, you can see that the price recently moved below the combined support of the 200-day moving average (red line) and a long-term ascending trendline. Notice how these two levels have provided traders with ideal entry points over the past couple of years and how they reliably marked the area where significant bounces higher would occur. As noted in the introduction, the recent close below the major support levels has changed the tune of the analysis, and many traders are now expecting the bears to continue to remain in control. The bearish crossover between the 50-day and 200-day moving averages (shown by the blue circle) is a popular long-term sell signal. Traders will likely look to place sell orders as close to $36.66 as possible and protect the position by placing stop losses above either the dotted trendline or $37.60, depending on risk tolerance.

Technical chart showing the performance of the iShares Commodities Select Strategy ETF (COMT)
StockCharts.com

Invesco DB Commodity Index Tracking Fund (DBC)

Taking a look at the chart of the Invesco DB Commodity Index Tracking Fund (DBC), it is clear that the bears are dominating the price action. While a reprieve toward the long-term moving averages could be in the cards over the remaining days of 2018, the long-term trend has been set, and prices will likely continue to weaken for a good part of 2019. Bearish traders again will likely want to keep a close eye on the price to see if it will be able to regain some of the loss and head toward the major moving averages. From the perspective of the bears, positions that are opened as close as possible to the long-term resistance level near $17 will provide the most lucrative risk-to-reward scenario heading into the New Year.

Technical chart showing the performance of the Invesco DB Commodity Index Tracking Fund (DBC)
 StockCharts.com

Teucrium Wheat Fund (WEAT)

Agriculture commodities such as wheat and soybeans have been under pressure for most of the past year. In the case of the Teucrium Wheat Fund (WEAT), the trend has moved sideways for the bulk of the period, which has caused the long-term moving averages to whipsaw and trick traders into thinking that a longer-term move was in the cards. Given the bearish crossover between the moving averages back in October, followers of technical analysis would expect this to mark the beginning of a major move lower. However, given the underlying weakness and already low prices that have dominated this segment for the past couple of years, it may be a better bet to apply some range-bound trading strategies and attempt to profit from a reversion to the middle of the range.

Technical chart showing the performance of the Teucrium Wheat Fund (WEAT)
StockCharts.com

The Bottom Line

Weakness over the past several weeks has left few areas of the markets unscathed. Commodities have been no different, and bearish price action along with nearby levels of resistance suggest that prolonged moves lower could be the story of 2019. Whether it's betting on a move lower or betting on a bounce toward resistance after major sell-offs, it is clear that the overall momentum is in the control of the bears. 

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.