It is common for commodity traders to focus their attention on the agricultural markets in early August. Given the point in the growing season, momentum from supply and demand tends to be set and will generally reverse only due to a significant shift in underlying fundamentals. With that said, fair weather, increased productivity, robust supply, media attention and the threat of a global trade war seem to be combining in a manner that currently make it look as though the downtrend will be impossible for the bulls to reverse and will likely drive the direction of the group for the remainder of 2018. In this article, we'll take a look at several charts that are used to track agricultural commodities and try to determine how active traders will want to trade the move. (For more, see: Technical Traders Are Starting to Bet Against Agriculture.)
It is little secret that the bulls have struggled to push the price of agricultural commodities higher over the past couple of years. As shown by the chart of the Invesco DB Agriculture Fund, the downward-sloping trendline has acted as a floor to significant threats of a move lower, but the recent close below the trendline and the subsequent failed test to move above it suggest that the bears are in clear control of the momentum. Active traders will look to Monday's close below the July low (shown by the red circle) and the bearish crossover between the moving average convergence divergence (MACD) and its signal line as a sell signal, which could act as a catalyst to the next wave of selling pressure. Traders will likely use these trendlines when determining the placement of their buy and stop orders and will likely maintain a bearish view until the price closes back above the longer-term trendline, which is currently trading near $17.75. (For more on this topic, check out: 3 Agriculture Charts to Keep on Your Radar.)
Ample supply of soybeans in the United States has long-term investors concerned that a pending trade war with China will trap supply in North American and thereby hinder potential profit from exports. Taking a look at the chart of the Teucrium Soybean Fund, it is interesting to note how the price has recently failed to move above the key resistance of the 50-day moving average (shown by the red arrow). This long-term moving average is often looked to by active traders as a guide for the long-term direction of the trend, and recent weakness suggests that a move toward the July low, or potentially below it like the case of DBA, could be in the cards. (For related reading, check out: Strategic Traders Are Turning to Agriculture.)
Another popular exchange-traded product that is used by active traders for trading movements in agriculture commodities is the Teucrium Corn Fund. Taking a look at the chart below, you can see that the price has failed to overcome the resistance of the 200-day moving average. This long-term moving average is considered to be even more significant than the 50-day moving average, as discussed above, and many bears will likely use it as a guide for placing their stop-loss orders. The lucrative risk/reward and bearish crossover between the MACD and its signal line are indications that the bears are in control, and short-term target prices will likely be placed near the July low of $15.66.
The Bottom Line
The bearish combination of fundamentals and technicals makes agricultural commodities of specific interest to active traders. Based on the charts above, traders will likely expect prices of major commodities such as corn and soybeans to head lower and will use nearby trendlines to set the placement of their orders. (For further reading, check out: A Primer for Investing in Agriculture.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.