On Thursday and Friday of last week, we saw the US dollar resume its downtrend, and the commodity sector begin to pick up participation as a result. This is likely to continue into the future as the US dollar is destined for lower lows; thus we are quite interested in finding parts of the commodity sector that have been "laggards" recently. The first that comes to the "radar screen" is the Agriculture group as it has been "most laggard." This group is primarily comprised of the grains such as Soybeans, Corn and Wheat; but the ETF that we are interested in - the DB Agricultural ETF (DBA) - is comprised of roughly 70% grains and 30% Sugar. This is fine for our puproses; and if we have to make a bullish fundamental case for DBA...it is that the bountiful harvest is already discounted, with any type of stress into harvest leading to a bit of short covering and perhaps a good deal of real buying if anticipated economic growth materializes.
From a technical perspective, we'll simply note that there are a series of higher lows and higher highs forming, which may or may not be part and parcel of a rising bearish flag pattern. But in any case, even if it were a bearish pattern - there is certainly room for an upside trade from its current $25 level to $30 in the weesk and months ahead. Quite simply, DBA is oversold per the 40-day stochastic, which increases the probability of a rather sharp move higher. Too, prices are breaking out above the 150-day moving average, which has been a rather bullish sign in the past as well.
If one chooses to consider this trade, then the risk is for a break of the recent lows at trendline support; while the reward is a trade to $30. Put another way; we'll risk $1.50 for a gain of $4.50.
Good luck and good trading,
Richard
