Tuesday, July 7, 2015
The financial markets are reeling...
The S&P 500 is down almost 4% from its May high. Germany's benchmark DAX index has lost around 10% since April. China's stock market – the Shanghai Stock Exchange Composite Index – has crashed more than 20% in less than a month. Long-term U.S. Treasury bonds are down about 15% since February. The price of oil is rolling over again. And even gold can't seem to catch a bid in this environment.
But there is one sector that just kicked off an explosive rally... agricultural commodities...
Take a look at this chart of the PowerShares DB Agriculture Fund (DBA)...
I tried to pick a bottom on this sector back in late February. Back then, DBA was trading around $22.80 per share and the chart looked like it was forming a "double bottom" pattern. It was an excellent low-risk/high-reward setup. But it didn't work out.
DBA broke support at $22.80... And it has since spent four months trying to find a bottom.
Notice, though, how the moving average convergence divergence (MACD) momentum indicator was rising as the price of DBA shares was falling. This "positive divergence" was a sign that the momentum behind the decline in DBA was shifting from bearish to bullish. And the sector was overdue for a reversal.
That reversal started last week, when DBA exploded more than 5% higher in just three trading days and broke through resistance at $22.80 (previously support).
The strength of that move, along with the length of time DBA spent consolidating near the lows and the solid positive divergence on the MACD indicator, suggests this move has a lot further to run.
If DBA can break above resistance at about $23.50 per share, then there really isn't anything to hold it back from reaching $25 over the next several weeks.
The sector is overbought in the short term. That often happens in the early stages of a new rally phase. So DBA is likely to come back down and retest the $22.80 level as support.
Traders should use that pullback as an opportunity to buy. Agricultural-commodity prices are headed higher... Make sure you're in position to profit.
Best regards and good trading,
Yesterday, Matt Badiali shared another sector that's gearing up for a "boom" phase... It's not there yet, but it's getting close. Read his analysis here to see which metal you should put on your watch list.
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Social-media companies struggle... Twitter, Yelp, and LinkedIn sink 20%-plus in four months.
Disney continues to soar... shares touch another all-time high.
Canadian stocks head lower... country fund EWC drops nearly 20% in 10 months.