Active traders generally turn to the tools of technical analysis such as trendlines and moving averages to identify levels of support and resistance. These key levels are then used by traders for determining the placement of buy and stop orders. As the price nears levels of resistance, range-bound traders will often look to sell in anticipation of a move back toward support and then buy again near support in anticipation of a bounce. The oscillation between support and resistance can often lead to predicable returns, and one segment that is of specific interest to this group is agriculture. In the paragraphs below, we'll take a look at three charts and discuss how active traders will likely look to position themselves over the months ahead.
Invesco DB Agriculture Fund (DBA)
Active traders generally turn to sector-specific exchange-traded products such as the Invesco DB Agriculture Fund (DBA) to get a sense of the overall trend or momentum. Based on the chart below, you can see that the price has been trading within a period of consolidation as marked by the channel pattern. The horizontal trendlines mark the key levels that traders will likely use when planning their strategy. More specifically, recent price action suggests that the price is on its way toward the combined resistance of the upper trendline and the 200-day moving average (red line) near $17.50. Short-term traders will likely look to buy near current levels or on a pullback toward the lower support level, sell as it nears the level of resistance and then repeat the process until the price is able to surpass one of the levels, which would then require a different strategy.
Teucrium Corn Fund (CORN)
Another agriculture chart of interest is that of the Teucrium Corn Fund (CORN). This exchange-traded fund (ETF) is utilized by traders who don't have access to a futures account but would like to gain direct exposure to the popular commodity. As you can see below, the price has been trading within a defined range for the past several months, and traders will now be keeping a close eye to see if it is able to surpass resistance near $16.50 and $16.76, respectively. Range-bound traders will likely be watching for a short-term pullback toward support near $16, which represents a 2.5% gain and could occur over the course of only a few trading sessions.
Teucrium Wheat Fund (WEAT)
Another agriculture commodity chart of specific interest to range-bound traders belongs to the Teucrium Wheat Fund (WEAT). As you'll see in the chart below, this segment is trading at the bottom end of a longer-term range, and many traders could be positioning themselves by placing orders near the support of the lower trendline and then watching for a move toward the middle of the range just like the ones that have occurred on the charts above. A bounce toward the middle or upper part of the idenfitied range represents a significant gain, while the lower support protects against any continued weakness.
The Bottom Line
When it comes to the commodity markets, technical traders are currently taking a keen interesting in agriculture due to the confined trading ranges. The levels shown by the trendlines above will likely be used by traders over the weeks or months ahead to determine where to place buy and stop orders.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.