The agriculture sector has struggled against the effects of macro-level for several years, and 2020 turned out to be no different. As the growing season approaches, merchants are looking in the charts and I was wondering how much downside might be left.
The price is currently trading near the lower end of a well-defined trading ranges that have developed over several years. Perhaps the proximity of support could be an early signal that the bottom is in place. In this article, we are going to look at more closely in the agriculture sector and try to determine how traders will position themselves over the weeks and months to come.
Invesco DB Agriculture Fund (DBA)
Merchants interested in adding exposure to agricultural commodities to their portfolios often turn to exchange-traded products such as Invesco DB Agriculture Fund (DBA). This fund is divided nicely in futures contracts on wheat, soybeans, cocoa, sugar, coffee, corn, live cattle, lean hogs, etc
As you can see on the chart below, the price of the fund trading near the long term descending trend line. The followers of the technical analysis note that the trend line has greatly included in the price, in the past, and many expect this problem to continue in the future.
The slight period of consolation combined with the trend of upward-sloping moving average convergence divergence (MACD), relative strength index (RSI), and stochastic indicators suggest that the bulls are starting to gain some traction. Based on this graph, it would not be surprising to see the base continue to strengthen and for the price to start to move closer to the resistance of the 200 day exponential moving average of around $15.24.
As the top holding of the Fund administrator, active traders may be more interested in adding exposure to wheat futures. For those without a futures account, a product that could be useful to your account is the Teucrium Wheat Fund (WEAT). As you can see on the chart below, the fund is trading near the lower end of a defined range. Based on this model, uptrend, traders will be more than likely looking to buy near current levels and protect against the unexpected sales by setting stop-loss orders below $5.20.
Deere & Company (DE)
When it comes to agricultural equipment, Deere & Company (DE) is a player who needs no introduction. With a market capitalization of $42 billion, the company dominates the agricultural machinery industry. As you can see on the 10-year weekly chart, price is trading near the support of the 200 week moving average and a couple of influential in dotted, the curves of trend. These nearby support levels suggest that the stock is a prime candidate for a big bounce higher and that stop-loss will probably be placed below $134 in the case where the selling pressure is able to continue.
The Bottom Line
The agriculture sector has dealt with its share of difficulties over the past two years, but on the basis of the patterns discussed above, it appears that the bottom could be put in place and the bulls are poised to make a push higher.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.