The Uptrend in Commodities Is Just Getting Started (ABX, AA)
By Anthony Jerdine| July 13, 2016 — 11:11 AM EDT
Commodities are still on the rise, and the long-term buy signs that are appearing on the charts are tempering the views of even the most devoted bears. In the article below, we’ll take a look a closer look at the charts and try to identify strategic levels for the placement of entry and stop-loss orders.
PowerShares DB Commodity Index Tracking Fund
When it comes to the broad commodities market, many active traders prefer to turn to exchange-traded products such as the PowerShares DB Commodity Index Tracking Fund (DBC) because it offers a broad level of diversification in one investment. For those new to trading commodities, DBC is comprised of commodity futures on fourteen of the most heavily traded and important physical commodities in the world such as gold, oil, and copper. Taking a look at the chart below, you can see that the price is currently trading near the combined support of the ascending trendline and the 50-day moving average. The proximity of key support levels triggers ideal conditions for bullish traders based on the risk-to-reward ratio and many will likely buy at current levels and look to protect their positions by placing stop-loss orders below 14.69 or the 200-day moving average depending on risk tolerance. Longer-term traders will use the crossover between the 50-day and 200-day moving averages back in May as a sign of confirmation of a move higher and will likely maintain this outlook until the price closes below the aforementioned support levels.
One company that tends to be used as a barometer for corporate earnings and the state of the industrial metals complex is Alcoa, Inc. (AA). The recently announced earnings beat on both the top and bottom lines has triggered a rally in the stock, which has found bullish traders tripping over themselves as they look to fill buy orders above the dotted resistance of the sideways consolidation pattern. The chart below clearly illustrates the levels of support and resistance that will be of most interest to active traders, and it would be surprising if most maintain a bullish outlook until the price closes below $9.
Barrick Gold Corp.
When it comes to commodities, a recent surge in volatility has also triggered a move into precious metals such as gold. While there are many funds that one could use for gaining exposure, many are finding that they’d like to invest directly in the companies that are doing the mining. This added interest in the miners has sparked a sharp rally in Barrick Gold Corp. (ABX) and as you can see from the chart below, the momentum is clearly in favor of the bulls. Notice how the 50-day moving average has propped up the price on each attempted pullback so far in 2016. Most active traders would expect this behavior to continue and will likely protect their positions by placing a stop-loss order below either the swing low of $19 or the 50-day moving average of $19.24 depending on risk tolerance.
The Bottom Line
The strong uptrend in the commodities market has lasted longer than many bears have anticipated. While many remain skeptical, the long-term buy signs that are appearing on the chart are changing the minds of many and from a technical analysis perspective, there is little reason to expect the momentum to change directions any time soon.