The agriculture sector has battled against adverse macro-level conditions for several years, and 2020 has proven to be no different. As the growing season gets closer, traders are looking at the charts and wondering how much downside could possibly be left.
Prices are currently trading near the lower end of well-defined trading ranges that have developed over several years. Perhaps the nearby support could be an early signal that a bottom is in place. In this article, we'll take a closer look at patterns across the agriculture sector and try to determine how traders will position themselves over the weeks and months ahead.
Invesco DB Agriculture Fund (DBA)
Traders interested in adding exposure to agricultural products to their portfolios often turn to exchange-traded products such as the Invesco DB Agriculture Fund (DBA). This fund is divided nicely into futures on wheat, soybeans, cocoa, sugar, coffee, corn, live cattle, lean hogs, etc.
As you can see from the chart below, the price of the fund is trading near a long-term descending trendline. Followers of technical analysis will note that the trendline has greatly included the price in the past and many expect this behavior to continue in the future.
The slight period of consolation combined with the bullish-sloping moving average convergence divergence (MACD), relative strength index (RSI), and stochastic indicators suggest that the bulls are starting to gain some traction. Based on this chart, it would not be surprising to see the base continue to strengthen and for the price to start to move back toward the resistance of the 200-day exponential moving average near $15.24.
As the top holding of the DBA Fund, active traders may be most interested in adding exposure to wheat futures. For those without a futures account, one product that could be worth your consideration is the Teucrium Wheat Fund (WEAT). As you can see from the chart below, the fund is trading near the lower end of a well-defined range. Based on this pattern, bullish traders will most likely be looking to buy near current levels and protect against an unexpected sell-off by setting stop-loss orders below $5.20.
Deere & Company (DE)
When it comes to agricultural equipment, Deere & Company (DE) is one player that requires no introduction. With a market capitalization of $42 billion, the company dominates the agricultural machinery industry. As you can see from the 10-year weekly chart, the price is trading near the support of the 200-week moving average and a couple of influential dotted trendlines. These nearby support levels suggest that the stock is a prime candidate for a major bounce higher and that stop-losses will most likely be placed below $134 in case the selling pressure is able to continue.
The Bottom Line
The agriculture sector has dealt with its fair share of hardship over the past couple of years, but based on the patterns discussed above, it seems as though a bottom could be in place and the bulls are readying to make a push higher.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.