Since the middle part of 2017, an extremely broad range of commodities have managed to trend higher. Predictable behavior near major levels of support and resistance has made this group a favorite among active traders. Recent closes below influential levels of support, as discussed in the paragraphs below, suggest that the uptrends are now in the process of reversing and that the bears will continue to dominate the momentum heading into 2019.
Traditionally, when active traders would look to gain exposure to commodities, they would be required to have a futures account. However, given the rise in popularity of exchange-traded products such as the Invesco DB Commodity Index Tracking Fund, investing directly in futures contracts is no longer required. In case you aren't familiar, the DBC fund comprises futures contracts on 14 of the world's most in-demand commodities such as oil, gold and soybeans.
Based on the chart below, you can see that the bears recently pushed the price below the combined support of the 200-day moving average and an ascending trendline. The close below that level is a technical sign of a breakdown and will like be used as confirmation of a continued move lower. From a risk management perspective, traders will likely set stop-loss orders above $17.27 or $17.49, depending on risk tolerance. Bulls will likely want to remain on the sidelines until major indicators start to show signs of another reversal.
One of the most interesting chart patterns currently in the realm of the commodities market is the Materials Select Sector SPDR. As you can see below, the price has also recently closed below its 200-day moving average and has experienced a sharp move lower. The bounce so far in November has sent the price back toward the new-found resistance levels, and it could be an ideal time for opportunistic bears to take a position given the lucrative risk-to-reward ratio. The recent bearish crossover between the 50-day and 200-day moving average is known by technical traders as the death cross and is often used to mark the beginning of a long-term downtrend. Recent price action is signaling that the bears are still in clear control of the momentum, and many traders will be keeping an eye out for a move toward the swing low near $50.
Another interesting chart pattern from within the commodities market that is worth taking note of belongs to the Elements Rogers International Commodity Index. As you can see, this chart is another clear example of how the bears have recently won control of the momentum by sending the price below the support of the 50-day and 200-day moving averages. The breakdown below the long-term moving averages as well as the move below the horizontal trendline are technical signs that the bears will likely remain in control for the remainder of 2018. Stop-loss orders will likely be placed above $5.56 in case of a sudden shift in underlying fundamentals.
The Bottom Line
Active traders have managed to profit consistently from defined uptrends within the commodities market over the past several years, but the recent closes below key levels of support are suggesting that the bears are taking over. Based on the charts discussed above, traders will likely maintain a bearish outlook on commodities heading in 2019, and most traders will likely want to wait for clear buy signals before betting on a significant mover higher.
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not hold a position in any of the securities mentioned.