The Producer Price Index is accelerating at a quick pace, with a 0.8% increase this November. For the year, producer prices are up 9.6%. As the media and market digest the increase in prices, the stagflation narrative becomes more realistic.
With that said, this gives us more confirmation that commodities should be closely watched going into next year. Three ETFs we are monitoring are the Invesco Agricultural Fund (DBA) Invesco Water Res (PHO) and Teucrium Wheat (WEAT). Currently, DBA has the least amount of resistance, as it's both over its 10-day moving average and its 50-DMA at $19.52. Additionally, DBA's 50-DMA aligns with major support areas dating back to August, making it an interesting pick if it continues to hold over $19.50.
Moving on to water, PHO is testing its 50-DMA and looks as though it will need more time to develop if unable to stay over $57.94. PHO also has resistance to clear at $60-61 before it can continue its upward trend. However, even with resistance to clear, droughts and irregular weather patterns makes PHO an interesting space to watch through the coming year.
Then we have WEAT, which is sitting under both the 10-DMA and 50-DMA at $7.60. Recently, WEAT created a head-and-shoulders chart pattern and is now leaning on support from the lower neck level, as seen in the black line in the above chart. Once WEAT can clear $7.85, it will have broken through main resistance and can look to reclaim highs.
One thing to note is that, while these can be great picks alongside increasing inflation, our volatile market environment makes timing our entries key. Therefore, simply buying the correct symbol is only part of a successful trading strategy.
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- S&P 500 (SPY): 473.54 high to clear. 462.55 the 10-DMA hold at the moment.
- Russell 2000 (IWM): 212.71 needs to hold.
- Dow (DIA): 354.02 support.
- Nasdaq (QQQ): 385.23 50-DMA to hold.
- KRE (Regional Banks): 67.93 200-Day moving average next support.
- SMH (Semiconductors): Needs to stay over 297.89.
- IYT (Transportation): Failed to get back over the 50-DMA at 267.33.
- IBB (Biotechnology): Trending lower.
- XRT (Retail): Holding on to low of range.
Assistant Director of Trading Research and Education