The 2013-2015 era was an extremely difficult time for commodity traders, but a strong bounce from a bottom in early 2016 marked the start of a major level of consolidation. Strengthening fundamentals combined with major levels of long-term support, evident on the charts, have caused many traders to reopen positions in recent months. In the article below, we’ll dive deeper into the charts and try to determine where prices could be headed for the rest of 2017. (For more, see: Active Traders Turn Bullish on These Commodities).
PowerShares DB Commodity Index Tracking Fund
One chart that does an excellent job of illustrating the theme from above is the PowerShares DB Commodity Index Tracking Fund (DBC). As you can see from the weekly chart below, the bears were clearly in control of the trend until the capitulation point in early 2016. Notice how the sideways price action has started to form a base. This level of consolidation will be used by many technical traders to mark the beginning of the next major uptrend. It is quite interesting to note how the 55-week moving average has acted as an extreme level of support so far in 2017 and active traders will likely expect this behavior to continue for the weeks and months ahead. Buy orders will likely be placed as close to $15 as possible in an attempt to maximize the risk/reward and most will hold a bullish outlook on the broad commodities market until the price makes several consecutive closes below the aforementioned support. (For more on this topic, check out: Support and Resistance Basics).
iPath Bloomberg Livestock Subindex Total Return ETN
As the weather starts to warm, farmers and investors start to look at the fields, but their attentions should shift to the barns because one segment of the agriculture market that is gaining momentum is livestock. Taking a look at the chart of the iPath Bloomberg Livestock Subindex Total Return ETN (COW), you can see that the bulls were in clear control of the momentum until the technical breakout that occurred in late 2016. The close above the 200-day moving average and dotted trendline suggest that the downtrend is over and that the bulls are now in control. Active traders will also look to the recent crossover between the 50-day and 200-day moving average as a long-term technical buy signal, which could market the beginning of a major run higher. Based on the chart, we’d expect traders to place their buy orders as close to the nearby support as possible ($22.32) and protect their long positions by placing stop-losses several percentage points below. (For more, check out: Watch Out for Agricultural Stocks).
iPath Bloomberg Copper Subindex Total Return ETN
Another commodity that has rebounded strongly in the past several months is copper. Increased awareness of upcoming infrastructure investment has propelled and based on the chart below it looks as though the long-term momentum is set to continue. Notice on the chart of the iPath Bloomberg Copper Subindex Total Return ETN (JJC) how the 200-day moving average has reversed its trajectory and is now headed higher. This shift in direction is a clear signal that the bulls are in control of the long-term trend. Most active traders will continue to hold a bullish outlook on copper and place their stop-losses below $27.62 in case the recent pullback surprises to the downside. (For more, see: 4 ETFs for Trading the Surge in Commodities).
The Bottom Line
Commodity traders have experienced a tumultuous time over the past several years, but the recent periods of consolidation and nearby support is setting up for ideal conditions for those looking to time their entries early to take advantage of the next major uptrend. (For more, see: 3 Commodity Charts To Watch In 2017).
At the time of writing, Casey Murphy did not own any of the products mentioned.