Broad commodity ETFs are like broad index ETFs: an amalgamation of various components. Traders can improve performance by breaking these down, ignoring the weaker components and focusing on the stronger components. Let's do that with the Invesco DB Commodity ETF.
The Commodity ETF (DBC) can be broken down into the Agriculture ETF (DBA), the Base Metals ETF (DBB), the Energy ETF (DBE) and the Precious Metals ETF (DBP). Of these four components, only two are currently above their 50-day SMAs: DBB and DBA. As the chart below shows, DBB is the clear leader with a breakout on October 9th and 52-week high this week.
The Agriculture ETF (DBA) has yet to clear its September high, but sports a bullish continuation pattern. After a surge from late June to early September, the ETF consolidated with a trading range the last seven weeks. A consolidation within an uptrend is typically the pause that refreshes, or a bullish continuation pattern. A breakout would signal a continuation of the bigger uptrend.
Momentum is bullish because RSI moved above 70 when DBA advanced above the 200-day. Moves above 70 may be considered short-term overbought, but it takes strong upside momentum to get above 70 and this is longer term bullish. DBA alleviated the short-term overbought conditions as RSI dipped into the 40-50 zone and bounced in late September.
Despite relatively low volume, ETFDB.com rates DBA and DBB A+ for liquidity. Liquidity is not driven by volume alone and there are several factors at work. For one, the liquidity of the individual components is an important factor. Agriculture and Metals futures, the components, are very liquid.
This week at TrendInvestorPro.com we backtested the S&P 500 breadth model over the last twenty years and showed how to add more octane to the signals. There is also a post on exit strategies that compares three trailing stop indicators. Subscribers also get access to the ETF ChartBook, ETF Trends, Patterns & Setups report and the comprehensive weekend video.
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Arthur Hill, CMT
Chief Technical Strategist, TrendInvestorPro.com
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