Weakness in commodities has been the story of the financial markets over the past several weeks as investors turn their favor toward equities. In the article below, we’ll take a look at the impact on a variety of key commodities and try to determine where prices could be headed from here. (For a quick refresher, check out: Commodities Trading: An Overview).

PowerShares DB Commodity Index Tracking Fund

One of the most commonly used products for trading the commodities market is the PowerShares DB Commodity Index Tracking Fund (DBC) because it is comprised of futures contracts on fourteen of the most liquid physical commodities. Taking a look at the chart, you’ll notice that the bears have recently pushed the price below several key levels of long-term support. The dotted trendlines along with the 50-day and 200-day moving averages represent substantial barriers to a significant shift higher. Furthermore, the bearish crossover between the moving averages, which is shown by the red circle, is referred to by active traders as the death cross and is a common long-term sell signal that is used to mark the beginning of a major downtrend. Due to the proximity of major resistance levels, we’d expect bullish traders to wait on the sidelines for signals of a reversal such as a close above one of the mentioned trendlines. (For more, see: 3 Charts That Suggest Commodities Are Headed Lower).

iPath S&P GSCI Crude Oil Total Return Index ETN

Most retail investors aren’t sophisticated enough to trade futures contracts on physical commodities such as gold or oil. Instead, as discussed above, most traders will turn to exchange-traded funds such as DBC. When it does come to buying specific commodities such as West Texas Intermediate, most will turn to funds such as the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL), which is designed to reflect the returns that are potentially available through an unleveraged investment in crude oil futures. Taking a look at the chart, you’ll notice that the price of this ETN has moved below key support levels and also faces substantial resistance of descending trendlines and long-term moving averages. The recent jump higher has some traders talking about a move higher, but based on the chart, it looks as though the bears will remain in control of the trend for a while longer. Bearish traders will likely look to enter a position as close to the resistance levels as possible to make the most of the risk/reward. Bullish traders may want to wait on the sidelines for a shift in the fundamentals to propel the price above the resistance. (For more, see: ETFs That Suggest Commodities Are Headed Lower).

Teucrium Wheat Fund

As the weather starts to warm, many active traders start to turn their attention to agricultural commodities. Unfortunately for the bulls, the outlook based on its chart pattern is not much better than those discussed above. As you can see from the chart of the Teucrium Wheat Fund (WEAT), the bulls face similar resistance points as those described above. More specifically, based on the chart, you can see that the 200-day moving average has prevented the trend from reversing several times over the past couple of years. This is a textbook style response to a long-term moving average and based on the historic price action near the red line, active traders will likely maintain a bearish outlook for weeks or months to come. (For more, see: Technical Indicators Suggest Agriculture Commodities Are Headed Lower)

The Bottom Line

Commodities have struggled to move higher in recent weeks thanks in part to investors looking for yield and risk in other asset classes. Based on the charts shown above, it looks as though the downtrends are set to continue in several of the key commodities, and as a result, the bulls may want to keep their powder dry until the time comes when the fundamentals shift in their favor. (For more, see: Spring 2017 Could Be A Bad Time To Buy Commodities).

At the time of writing, Casey Murphy did not hold a position in any of the assets mentioned.




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