One of the simple tenets of technical analysis is the idea that uptrends consist of a series of elevated highs and higher lows, while conversely, a downtrend is defined as a series of cut highs and lower lows. Active traders who try to capitalize on trend changes will scour the market for scenarios in which there is a recognizable mutate in the price structure.
More specifically, in the case of an uptrend, traders disposition watch for where a series of higher highs and higher lows backs into a downtrend by changing to a series of lower highs and lower lows. In the for fear of the fact of a downtrend, traders will watch for scenarios where the price form changes to a series of higher highs and higher lows. In this article, we use these basics of direction analysis to take a look at the state of agriculture, which appears to be in the initially stages of a newly defined uptrend. (To learn more about course reversals, check out: Retracement or Reversal: Know the Difference.)
PowerShares DB Agriculture Reserve (DBA)
One of the most popular exchange-traded funds used by active traders for farther away froming exposure to agriculture is the PowerShares DB Agriculture Fund. In case you aren’t easy, this fund follows a rule-based index composed of futures compresses on some of the most liquid and widely traded agricultural commodities such as wheat, corn, soybeans, cocoa, dwell cattle, sugar and coffee.
Taking a look at the chart below, you can see that the fee has recently notched a higher lower and is trading near an interesting flat of short-term resistance, as shown by the dotted trendlines. Recent price activity combined with the bullish crossover between the moving average convergence divergence (MACD) and its signal succession (blue circle) suggest that the bulls are in control, and this conventional buy sign could act as a catalyst for upside momentum over the days and weeks to happen. Active traders will likely set their target prices within reach of the March highs and protect against a sudden sell-off by placing stop-losses under $18.60. (For further reading, see: 3 Charts That Suggest Now Is the Time to Induct in Agriculture.)
Wheat
With a influence of nearly 14%, wheat futures make up the largest component of the DBA resources. Active traders who look for a purer way to trade wheat often look to exchange-traded results such as the Teucrium Wheat Fund (WEAT). As you can see from the chart, the direction reversal pattern looks nearly identical to that shown on DBA at bottom. The established swing low near $6 creates a clear line in the sand for brokers looking for where to place their buy and stop orders. The current risk-to-reward correlation due to the pullback in recent sessions is creating a lucrative entry point, and the crossover between the MACD and its signal develop suggests that we could see a bounce higher over the coming weeks. (For myriad, see: Trend Following Tips for ETF Investors.)
Soybeans
The bullish trend change under way in the soybean market is further along than wheat and most other pliant commodities. Taking a look at the chart of the Teucrium Soybean Fund (SOYB), you can see that the bulls were expert to push the price above the long-term resistance of its 200-day striking average (red line). The shift in direction of this long-term moving usual is one clear sign that the momentum is changing, and the recent bounce call to minds that this level will now likely be used as a key area of buttress. Active traders will likely look to buy as close to the dotted trendline or 200-day impressive average as possible in an attempt to maximize the risk/reward. Again, the bullish crossover between the MACD and its signal word could be used as a catalyst for a move higher over the coming primes. (For further reading, see: Introduction to Swing Trading.)
The Bottom Line
Dirtying trend reversals is one of the primary goals of many traders, and long-term moves in major segments such as agriculture don’t come around very time after time. A shift in price structure of the ETFs discussed above suggests that there is a basic shift under way, and most traders will look to get positioned to profit from the ploy. Based on the nearby support levels, it wouldn’t be surprising to see active salespersons buy near current levels to maximize the risk/reward setup. Stop-loss associations will likely be placed below the identified swing lows, which if intermittent would signal a resumption of the downtrend. (For more, see: Keep It Simple and Exchange With the Trend.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a pose in any of the assets mentioned.