Have Commodities Bottomed?

Posted on April 30, 2013 by Andrew Thrasher — 1 Comment ↓

The agriculture industry has been taken some hits in 2013, down over 6% YTD and almost 15% from its high last September. There was an expectation that this would be a big crop year for corn, with the USDA estimating that this year would see the highest corn acreage since 1936. Well it’s been a wet Spring for much of the Midwest, with reports of flooding in certain areas. This has pushed back planting of many crops, although there is still a few weeks left to get seed in the ground. Traders seem to be ignoring the weather reports and have pushed agg prices lower.

Today we are going to look at the PowerShares Multi-Sector Commodity Agriculture ETF ($DBA). Momentum, based on the RSI indicator, has been diverging from price since mid-February as it puts in higher lows. While $DBA has been hitting lower lows, the Relative Strength Index has been able to exit oversold territory and make an attempt at breaking above 50. As I’ve discussed in previous posts, when RSI is unable to break above the bearish range that has resistance around 50-60, we can extrapolate that bulls are holding weak hands. We saw a test of 50 in late January and again earlier this month before we finally broken above.

The 50-day Moving Average has been acting as resistance since the peak in September. Over the last two days price has been able to break above the moving average, following momentum’s led higher. However, with the last couple days of strength $DBA has broken above its upper Bollinger Band. It would be healthy for price to take a breather over the next day or two as the Bollinger Bands expand, however this doesn’t mean price can’t advance without some type of consolidation.

Looking at the COT data, we see that commercial traders, the ‘smart money’ now has a net-long position in corn, which accounts for 12% of $DBA. Commercial traders haven’t had a net-long position since June of last year – right before corn jumped from $6 to $8. We also saw commercial traders take a net-long position as corn prices bottomed in 2010 and rose 100% over the next 12 months. Typically we see these traders holding net-short positions as a hedge to other positions or crop production, so when a shift is made to net-long, a large change in price is likely. Corn has reacted positively to this bullish COT data, rising 5% in the last two days.

The weather over the next few weeks will likely have a large impact on the future of crop prices and how much progress farmers across the country are able to make. But based on the chart of the agriculture ETF and corn, things seem posed for appreciation. I’ll be watching to see if $DBA can hold its 50-MA, if momentum can put in a floor around 50, and if the ‘smart money’ makes continues to take on more long positions in the agg space.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Using Sine Waves With Trend Analysis

Posted on April 25, 2013 by Andrew Thrasher — No Comments ↓

I do most of my charting at Stockcharts.com, but I spend most of my day using thinkorswim to monitor markets intraday. Thinkorswim is a great platform and is an excellent charting tool. One of my favorite thinkorswim studies is the Mesa Sine Wave indicator. We can use the sine wave to determine if the market is trending and it can help identify possible shifts in trend.

The Mesa Sine Wave indicator uses two sine waves, one ‘normal’ sine wave as well as a wave that’s advanced by a 45 degree angle, called the “lead wave.” We can see that when the sine wave crosses the lead wave, the security may be changing trend. I’ve put green and red arrows to show examples of crosses on the S&P 500 chart below. The sine wave has been above the lead wave since Dec. 3rd of last year, staying with the up trend in $SPX. Using the Mesa Sine Wave indicator is not going to provide perfect trending signals, nothing will. However it can be a great tool to help see trends on various time frames.

I’ve also noted the trend line that I discussed a few weeks ago in my Technical Analysis Doesn’t Have to be Difficult post. I identified the possible levels of support if we saw a trend line break in the large cap equity index. Sure enough, we saw weakness and tested the previous short-term low and bounced. We are now back above the rising trend line and it appears bulls are going to try to make a run for 1600.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

One Year Blog Anniversary

Posted on April 22, 2013 by Andrew Thrasher — 3 Comments ↓

Well it’s been one year since I started writing this blog. It’s likely one of the best things I’ve done professionally, as I’ve been able to put down my thoughts and opinions and have a clearer understanding of my outlook on ~~the universe~~ capital markets.

When I first started blogging I had no idea what I was doing. I have no coding or computer programing experience, I noticed a lot of bloggers used WordPress so I opened up an account. I originally started writing at trendspectator.com, but after getting some wise advise from Phil Pearlman I switched over to Athrasher.com and haven’t looked back.

I feel I’ve grown tremendously in my never-ending education of the markets. My understanding of technical analysis principles and application has expanded ten fold in the last twelve months. I attribute a portion of this to my near-daily writing and forcing myself to look at things differently – in part to have something interesting to write about but also to challenge myself to improve in my research.

Twitter and StockTwits have also been a huge part of what’s made me a better trader and analyst. These two social media tools have been more beneficial than anything I’ve ever come across in devouring information. While my main focus started as just a leach on the teat of successful traders and bloggers, I know communicate with economists, traders, and other bloggers sharing information daily. The connections and relationships I’ve built up over the last year have helped change the way I view the economy and the markets.

It’s been great to see the number of page views grow and I enjoy the feedback I get from readers. To be able to share my outlook and thoughts on stocks, bonds, commodities, and currencies has been great. I look forward to writing and sharing over the next year and further developing relationships with many of you.

Based on what the futures are doing this morning, it appears crude is bouncing higher, keeping the above mentioned support in tact. If the deflationary winds continue then the COT data may be right and oil could end up testing the 2012 low. We’ll see what happens.