Agricultural commodities have been under pressure over the past several months due to decent weather, increased productivity, robust supply and the threat of a global trade war. In this article, we'll take a look at the chart patterns from across the agricultural commodities segment. These charts suggest that the downtrend is likely to continue for the remainder of 2018 and that the next leg lower could just be getting under way. (For a quick refresher, check out: Technical Traders Are Starting to Bet Against Agriculture.)
Many active traders turn to exchange-traded products such as the Invesco DB Agriculture Fund to get a broad sense of the overall state of the agricultural commodities market. In the event you aren't familiar, the DBA fund comprises futures contracts on some of the most widely traded agricultural commodities such as wheat, live cattle, corn, cocoa, sugar, coffee and lean hogs. Taking a look at the chart below, it is evident that the bears are in control of the momentum and that the descending 50-day moving average is acting as a strong level of resistance. Technically speaking, traders will likely use this nearby trendline in determining the placement of their orders. Specifically, stop losses will likely be placed below the recent swing high of $17.25. (For further reading, check out: 3 Charts That Suggest Agriculture Commodities Could Move Lower.)
One of the most interesting chart patterns in the agricultural commodities space belongs to the Teucrium Wheat Fund. As you can see below, the price of the fund has been trading within a defined channel pattern. It is interesting to note how the lower trendline has provided support in previous sell-offs and how it is trading near this level once again. Based on the patterns, active traders will likely maintain a bias to the downside because of the recent close below the influential 200-day moving average. The several closes below the support level over the past several months suggest that the bulls are having a difficult time reversing the trend's direction, and it is reasonable to expect that they will lose conviction and that the price will break below the lower trendline. In the event of a breakdown, traders would likely expect a sharp drop in the price of the WEAT ETF and likely set their target prices near $5. (For further reading, see: A Primer for Investing in Agriculture.)
Corn prices have had a turbulent run over the past several months. After the Teucrium Corn Fund fell to extremely oversold readings on the relative strength index (RSI) indicator, the bulls managed to muster a run higher, but the run failed at the long-term resistance of the 200-day moving average. The subsequent decline and further failure to overcome the resistance of the 50-day moving average is a technical indication that the bears are in control of the momentum. Based on the pattern, traders will likely expect the price of the fund to continue to trend lower until indicators such as the RSI and MACD suggest that it's time to buy. (For further reading, see: 3 Agriculture Charts to Keep on Your Radar.)
The Bottom Line
Agricultural commodities have been hit hard by a combination of fundamentals and technicals that have driven prices lower over the past several weeks. Recent closes below or near long-term levels of support suggest that the bears are gaining momentum and that a sharper move lower could be in the cards.
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.