When active traders want to get a good idea of where the broad commodities market is headed they turn to various exchange-traded products for clues. In this article, we’ll explore some of the most widely-used commodity ETFs and try to put together a forecast for where prices could be headed in 2017. (For more, see: An Overview of Commodities Trading)

PowerShares DB Commodity Index Tracking Fund

In case you aren’t familiar, the PowerShares DB Commodity Index Tracking Fund (DBC) has been designed by its managers as a cost-effective tool for investors to gain exposure to a broad basket of commodities. Specifically, the fund is comprised of futures contracts on 14 of the most heavily and important physical commodities in the world ranging from gasoline to zinc.

A common strategy used by active traders for gaining a long-term perspective is to change the periodicity of the DBC chart from daily to weekly. This means that every bar on the chart represents the price action from an entire week rather than the standard one day. This change in period is useful because it helps eliminate some of the noise or minor price fluctuations that tend to distract those new to trading. Taking a look at the six-year weekly chart below, you can see that the price was in a strong downtrend throughout most of 2014-15, but it seems to have stabilized in 2016. The sideways price movement that dominated this past year is recognized as a period of consolidation and is common before a major shift in trend.

Also, notice the horizontal bars shown on the left side of the chart. These bars represent a relatively underfollowed technical indicator known as Volume by Price. As the name suggests, these bars are a visual representation of the accumulated volume based on various price ranges. This indicator is commonly used for determining the location of long-term levels of support and resistance. Notice how the largest bar near $25 acted as a strong level of support from 2011 through most of 2014. The break below was the beginning of a major downtrend and that the move lower was accompanied by light volume until the price found support near current levels.  Based on technical analysis, it looks as though the downtrend is reversing and that there shouldn’t be much resistance standing in the way of the bulls until the price nears the previous support/resistance zone near $25. (For more, see: Commodities That Move The Market).

Coffee

When it comes to specific commodities, one that is trading at an interesting junction based on its long-term weekly chart is coffee. Taking a look at the eight-year chart of the iPath Bloomberg Coffee Subindex Total Return ETN (JO) below, you can see that the price has been trading sideways for much of 2015-16. Based on the extreme showing on the Volume by Price indicator, it appears as though the bulls and bears are at a stalemate near current levels. The slight shift higher puts the bias in favor of the bulls and based on the chart it looks as though the next stop could be in the mid-$30s sometime in 2017. (For more, see: How Sustainable Is The Rally In Coffee?)

The Bottom Line

Many active traders, especially when it comes to commodities, get carried away by the noise of day-to-day market fluctuations. Sometimes the best thing for a strategic trader to do is to take a step back and use a long-term weekly chart to help gain a perspective on the overarching major trend. Based on the charts discussed above and by applying the Volume by Price indicator it appears as though commodities have room to move significantly higher in 2017. (For more, see: 3 Commodity ETFs That Point To Higher Prices).

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.