In active trading, it is common for investors to turn their attention to commodities as volatility and levels of uncertainty rise. Physical commodities tend to act as a hedge against rising inflation and are flocked to when investors seek stability. In the article below, we’ll take a look at the state of several areas of the commodities market to get an overall sense of the upcoming direction. We’ll also try to determine if now is a good time to open a new position. (For more, see: The Week Ahead: March 13-17).
Taking a look at the chart of the PowerShares DB Agriculture Fund (DBA), you can see that agricultural commodities were stuck in a downtrend from the beginning of 2014 to the end of 2015. You’ll notice the fund was able to find support near $19.60 on several occasions over the past year and that the price has been confined within a sideways trend. A prolonged period of sideways price action, also known as consolation, is viewed by active traders as a base and is a pattern commonly found at the beginning of significant trend reversals. Technically, it may be early at this point to open a new position since the trend is still in favor of the bears, but based on the chart, it is understandable that some may choose to start adding exposure in anticipation of a major shift higher. (For more, see: Active Traders Are Turning Bullish On Agriculture).