Tuesday, August 26, 2014
It's time to buy agricultural commodities again.
In February, I said commodity bulls were going to make a lot of money this year. The PowerShares Agricultural Commodity Fund (DBA) – an exchange-traded fund made up of 17 different agricultural commodities – had been declining for three years... And it was showing signs that it was finally ready to move higher.
Readers who took my advice to buy made solid gains. DBA rallied 20% over the next three months.
But in May, I warned you to protect your profits. I said if DBA couldn't hold above the $28 level, it would likely drop to the next support line at about $26. And that's exactly what happened. DBA has given back about 60% of its gains from earlier this year.
Now, DBA looks set to bounce higher...
Take a look at this updated chart of DBA...
DBA closed just under $26 per share on Friday – down about 60% from earlier this year. The stock is still up around 8% in 2014 – which is on par with the around 7.5% gain in the S&P 500.
But unlike the stock market – which looks poised for a short-term pullback – DBA is resting on support around $26 and looks ready for at least a short-term bounce.
This is a low-risk area in which to buy agricultural commodities. If the commodity rally resumes, DBA should be able to climb back above resistance at $28 per share... and possibly reach its 2012 high at just above $30.50 per share by the end of the year.
On the other hand, if support fails and DBA falls to around $25.50, traders can exit the position for a small loss.
Using Friday's closing price, that's around $4.50 worth of potential profit and just $0.50 of downside risk. That's a nine-to-one reward-to-risk ratio... which makes agricultural commodities one of the best-looking trade setups in the market right now.
Best regards and good trading,
Steve Sjuggerud is also urging investors to buy commodities. He says the last time investor sentiment "was even close" to this low for one critical grain, it soared 150% in less than two years. Learn a "one click" way to buy this grain – and other critical commodities – right here.
A few weeks ago, Jeff updated readers on another great-looking trade... "This is a BIG DEAL," he says. "This is when new bull markets begin... And early investors could make double-digit gains over the next few months." Learn all about it right here: The Big Breakout You're Not Hearing About.
U.S. consumers are out shopping... Gap, Macy's, and Walt Disney hit 52-week highs.
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Indian stocks continue their strong year... country fund PIN is up 20%-plus in 2014.