Commodities have fallen out of favor in recent months as investors around the globe seek out growth and yield. Lackluster demand for commodities has caused many investors to turn toward equities and other asset classes. As you’ll read below, the charts of several commodity-related assets are suggesting the downtrend could just be getting started. (For further reading, checkout: The Downtrend In Commodities Is Set To Continue).
PowerShares DB Commodity Index Tracking Fund
When it comes to investing in commodities, the best way to gain exposure is through the use of futures contracts. With that said, trading futures requires a specific account, which requires a relatively high level of sophistication to be able to trade comfortably. Luckily for retail investors, exchange-traded products such as the PowerShares DB Commodity Index Tracking Fund (DBC), allow investors to gain exposure to a basket of futures contracts on fourteen of the world’s most important physical commodities. Taking a look at the chart, you can see that the price has recently tested the resistance of the 200-day moving average and has failed to break above (shown by the red arrow). The bounce off of the resistance is typical behavior based on technical analysis. When the failed move above the 200-day moving average is combined with the bearish crossover between the 50-day and 200-day moving average (shown by the red circle), it suggests that the downtrend is in its earliest phase. Based on this chart, the bears will likely set their short-term targets near the May lows and then watch for a break lower from there.
(For more on this topic, check out: 3 Charts That Suggest the Downtrend in Commodities Will Continue).
With summer approaching many investors start to shift focus toward agriculture commodities such as wheat and soybeans. Taking a look at the five-year weekly chart of the Teucrium Wheat Fund (WEAT), it is clear that the wheat market is trading within one of the strongest downtrends around. The combined resistance of the 50-week moving average and long-term descending trendline will be used by active traders as guides for order placement. It will likely to continue to prove strategic for the bulls to remain on the sidelines until the price is able to notch several consecutive closes above one of the aforementioned resistance levels. (For more, see: Technical Indicators Suggest Agriculture Commodities Are Headed Lower).
As discussed above, agriculture commodities have struggled to find support in recent weeks as investors flock to other market segments that they believe offer better returns. Like wheat, soybeans are also trading within a defined downtrend. Based on the chart of the Teucrium Soybean Fund (SOYB), you can see that the bears are in control of the momentum and the recent failed attempt to overcome the 50-day moving average is an indication that prices are likely to continue to move lower. Active traders will also likely use the bearish crossover between the MACD and its signal line as confirmation of the move lower and most will likely set their stop-loss orders above either the swing high from earlier this month or above $18.25.
The Bottom Line
Commodities have fallen victim to lackluster fundamentals combined with an insatiable appetite for risk by most global investors. Based on the charts above, it appears as though the nearby resistance levels will prevent a sustainable move higher and that the bears are likely to continue dominating the underlying trends. (For more, see: 3 Commodity Charts to Watch in 2017).