Active traders around the globe are turning their attention to the commodity markets because the significant downtrends that have been in place for months are in the process of reversing. One area of the market that is of particular interest is the group known as the softs. For those new to finance, soft commodities or softs are those commodities that are grown rather than mined. Popular soft commodities include coffee, sugar, cocoa, soybeans, cotton, and wheat. In the article below we’ll take a look at the charts of several of the most promising soft commodities and try to determine where they are headed from here. (For more, see: Trading The Soft Commodity Markets.)
iPath Bloomberg Softs Subindex Total Return ETN
For some traders, investing in one commodity, such as sugar is too risky. Given the downtrends in recent memory, this approach is understandable and as a result, it may be worth taking a closer look the iPath Bloomberg Softs Subindex Total Return ETN (JJS). For those who don’t know, the fund seeks to track the performance of coffee, cotton, and sugar, which is helpful because it spreads out the risk. Taking a look at the chart below, you can see that the price has recently moved above the resistance of the 200-day moving average, which is a technical signal of a shift in the long-term trend. More specifically, bullish active traders will want to add this group to their watchlists because of the recent upward crossover between the 50-day and 200-day moving averages. This type of trading signal is known as the golden cross and is one of the most popular long-term buy signals. From a risk management perspective, traders will likely maintain a bullish outlook on this group of commodities and will set their stop-loss orders directly below the 200-day moving average ($32.05) in an attempt to maximize the risk-to-reward setup.
(For more on this topic, check out: Forget Stocks, Buy Soft Commodities.)
The current chart of coffee prices is one of the most bullish anywhere in the financial markets. Like most commodities, the bears have been in control of the momentum for much of the past year (as shown by the descending trendline). The close above the trendline shown on the chart of the iPath Bloomberg Coffee Subindex Total Return ETN (JO) earlier this year along with the subsequent break above the 200-day moving average was a clear signal that the trend was reversing and that the bulls are regaining control. From a technical analysis perspective, the increased volume in recent trading sessions combined with the bullish crossover between the MACD indicator and its signal line also suggest that a move higher is likely in the cards. Active traders will likely hold a bullish outlook on the price of coffee over the coming weeks and will likely protect their long positions by placing stop-loss orders below $19.31 as downside protection. (For more on this topic, see: Top Coffee ETFs.)
Sugar prices have been leading most other soft commodities higher over the past several months and based on the chart below of the iPath Bloomberg Sugar Subindex (SGG) it doesn’t appear that this story is about to change anytime soon. The trendlines shown on the chart have played a significant role in determining the direction of the price and at this point all eyes are on the $38.80 level because a move above would signal a break higher. Bullish active traders will likely look to protect long positions by placing their stop-loss orders below either the 50-day or 200-day moving averages depending on their risk tolerance. (For more, see: Top 3 Sugar ETFs.)
The Bottom Line
Most traders have steered away from commodities over the past year, but recent bullish signals on the charts of the soft commodities mentioned above suggest that it could be worth giving this group a closer look. (For more, see: Top Commodities ETFs for Your Portfolio.)