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Agriculture ETFs Cultivate Bullish Chart Patterns

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Agriculture has not exactly been the first choice of commodities traders over the past several months. In many cases, multi-year downtrends have scared investors away from this sector. However, given the recent price action on several key agriculture-related exchange-traded funds (ETFs), which we will discuss in this article, it is looking like the story could be changing, and these pockets of strength could be a leading indicator of significant moves higher over the coming months. (For more, see: A Primer for Investing in Agriculture.)

iPath Bloomberg Livestock Subindex Total Return ETN (COW)

The livestock segment of the agriculture commodities market has faced a fair number of challenges over the past several years related to disease, weather and shifts in consumer demand. On the chart of the iPath Bloomberg Livestock Subindex Total Return ETN, prices seem to have stabilized through the first half of 2017, and the breakout in late April was a technical signal of rising prices. It is particularly interesting to see how the breakout (shown by the blue circle) has resulted in a rising 50-day moving average (blue line), which is a level that many traders use to mark potential entry points and levels for stop-losses. The upward divergence between the 50-day and 200-day moving averages suggests that the newly formed uptrend is picking up momentum and could be geared up for another leg higher over the coming weeks. Bullish traders will likely place their stop-loss order below the dotted trendline or the support of the long-term 200-day moving average in case of a sudden sell-off. (See also: Watch Out for Agricultural Stocks.)

Technical chart showing the performance of the iPath Bloomberg Livestock Subindex Total Return ETN (COW) over the past year

Teucrium Wheat Fund (WEAT)

It looks as though the breakout that many commodity traders have been waiting for in wheat has finally come. As many of you know, wheat prices, as represented by the Teucrium Wheat Fund, have been trading within one of the strongest downtrends found anywhere in the commodities markets since breaking down in 2014. Taking a look at the chart, you’ll notice that the bulls were recently able to push the price above the dotted resistance, which was followed by a sharp move higher. This is common behavior following major technical breakouts and could mark the beginning of a long-term shift in the trend. While the price may have gotten ahead of itself over the past week or so, many active traders will likely aim to be patient and look to buy on any weakness in an attempt to maximize the risk/reward. (For more, see: Trade the Rise in Agriculture Commodities.)

Technical chart showing the performance of the Teucrium Wheat Fund (WEAT) over the past three years

Teucrium Corn Fund (CORN)

Another agriculture commodity that will be of specific interest to active traders over the coming week will be corn. Taking a look at the chart of the Teucrium Corn Fund, you can see that the price just recently broke beyond the resistance of a long-term downtrend and is now a candidate for a sharp move higher like that shown on the chart of WEAT. From a risk management perspective, bullish traders will likely set their stop-loss orders below the trendline or a couple of points below a recent swing low in case of a sell-off. (For further reading, see: Strategic Traders Are Turning to Agriculture.)

Technical chart showing the performance of the Teucrium Corn Fund (CORN) over the past four years

The Bottom Line

The agriculture segment of the commodities market has been underfollowed in recent months because of prominent downtrends. However, given the moves above key resistance levels, it looks as though these could be the early days of significant long-term uptrends. (For more, see: Active Traders Are Turning Bullish on Agriculture.)

Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own shares in any of the products mentioned.

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