When it comes to investing in commodities, agriculture is one segment often overlooked in favor of energy and metals. However, as the weather starts to warm up, many investors start to wonder if they should increase exposure to agriculture investments such as grains and livestock. In the article below we’ll take a look at several charts and try to determine what’s in store for the months ahead.
PowerShares DB Agriculture Fund
Generally, trading futures contracts has been the predominant means of gaining exposure to agriculture such as wheat, corn, and other grains. Trading futures contracts requires a certain level of sophistication and risk tolerance that many investors simply don’t have. However, with the rise in popularity of niche exchange-traded funds such as the PowerShares DB Agriculture Fund (DBA), it is now easy for retail investors to gain cost-effective exposure to a basket of agricultural assets. Taking a look at the chart below, you can see that it may be premature to jump into buying agricultural commodities because the momentum is currently clearly in favor the bears. The recent break below the neckline of a short-term head-and-shoulders pattern suggests that target prices will be set near $18.50. Bearish will likely place stop-loss orders above the resistance of the 200-day moving average, which has prevented prices from moving higher in the past. Based on this chart, it looks as though the best bet for the bulls is to wait on the sidelines until the price can close above $20.44 for several consecutive sessions. (For more, see: A Primer for Investing In Agriculture).
Teucrium Wheat Fund
One of the most widely used agricultural commodities is great, but given the fair weather and abundant supply, it seems as though the fundamentals will continue to work against the bulls. Taking a look at the chart of the Teucrium Wheat Fund (WEAT), you can see the price is trading within a defined downtrend and that the 200-day moving average will likely continue to behave as an extreme barrier to future price increase. The recent close below the dotted support will likely be used as confirmation that the downside momentum is strengthening and as suggested above, most bulls will likely want to remain on the sidelines until there is a major shift in the fundamentals. (For more, see: Agriculture Stocks May Head Even Lower).
Teucrium Corn Fund
One of the most interesting commodities charts is that of the Teucrium Corn Fund (CORN). As you can see below the price of the fund has drifted upward since Autumn 2016, but the recent encounter with the 200-day moving average suggested that the bears are still in control of the trend. Based on technical analysis, the strong level of resistance of the 200-day moving average is the foundation of many trading strategies and based on this chart it appears as though the bears are readying to make another push lower. Stop-loss orders will likely be placed above $19.14 in an attempt to make the most of the lucrative risk/reward scenario. Bullish traders will likely want to wait on the sidelines until the price can close above the swing high near $20. (For more, see: Commodities Trading Within A Defined Range).
The Bottom Line
Bearish chart patterns on the main agricultural assets discussed above suggest agriculture as a sector is likely to continue to face resistance in the coming months. Bullish traders will likely want to remain on the sidelines and wait for a shift in the fundamentals before opening new positions. (For more, see: 3 ETFs that Suggest Commodities Are Headed Lower).