With the passing of the summer solstice, many investors have started to turn their attention to agriculture-related commodities. A significant breakdown on the chart of the most widely followed agriculture exchange-trade fund (ETF) suggests that active traders will now likely hold a bias to the downside and view the move as a leading indicator that could drag niche agriculture commodities lower. (If you need a quick refresher, check out: A Primer for Investing in Agriculture.)
Over the past several months, active traders have been watching the price of the Invesco DB Agriculture Fund oscillate within a defined trading range, as shown by the dotted trendlines. The predicable price movements were ideal for range-bound traders, and the recent break below several notable trendlines suggests that the bears are in control of the short-term momentum and that prices could be headed lower over the coming few weeks. The close below the December low has also triggered a downward crossover between the 50-day and 200-day moving averages, known as a death cross. This technical signal is often regarded as the beginning of a long-term downtrend. Regardless of time horizon, the charts suggest that prices could head lower from here. (For further reading, see: Watch Out for Agricultural Stocks.)
Fertilizer has been one area of the commodities market that has countered the bearish trend over the past several weeks, and based on the charts of key players such as Mosaic, it appears as though this group could be poised to move counter to the broad trend. Given the downside bias shown above, long-term investors may want to be watchful of a move below the lower trendline because a break below the combined support near $25 would likely act as a catalyst for a surge in selling pressure. (For more, see: Traders Remain Bearish on Agriculture.)
Another chart that is used to track a segment of the agriculture market that appears to be showing signs of strength is the VanEck Vectors Agribusiness ETF. As you can see from the chart, the ascending triangle that has formed on the chart is currently appearing near the support of the 200-day moving average. Traditionally, based on this pattern, active traders would expect the price to rise toward the resistance ($64.50) and then break above, which would likely lead to a flood of buy orders. However, given the downside bias shown on the chart of DBA, traders may want to remain cautious because a failed breakout or a move below the support of $26.23 could actually act as a catalyst that would trigger a significant move lower. (For more, see: 3 Agriculture Charts to Keep on Your Radar.)
The Bottom Line
Some charts from across the agriculture markets are currently showing signs of strength and have some traders ready to bet on moves higher. However, given the bearish pattern on the Invesco DB Agriculture Fund, it could prove strategic to wait on the sidelines for a clear buy signal because over-arching downside bias suggests that bullish patterns could be acting as a guise, and smart money could actually be readying for a move lower. (To read more, see: Technical Indicators Suggest Agriculture Commodities Are Headed Lower.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.