Commodity ETFs may be running out of steam

KEY TERMS

OVB:  Outside Vertical Bar
VRCB: Volatility Reduced Compression Bar
Core Position: $50,000,000

PowerShares DB Agriculture (DBA):
08/31/2012 Closing Price: 30.42
INTERMEDIATE TERM (I.T.) SIGNAL:
Intermediate Term Trend is bullish.
Current Position: FLAT
Current Downside Targets = 27.94 – 27.40
Projected Weekly Range: .54
Trading 185,000 Shares

I.T. ANALYSIS:

• DBA is a comprehensive agricultural ETF. Holdings include fairly equally-weighted futures contracts in sugar #11, live cattle, corn, soybeans, cocoa, coffee, lean hogs, wheat, and cattle feeder.
• Last week DBA traded and closed above 30.37, confirming a new I.T. bottom. It also surpassed the previous top’s high of 30.44. These bullish moves were carried by strong buying in soybeans, live cattle and lean hogs markets. Although many signs still point toward the upside, we have begun to see intrinsic weakness within the commodity sector. The extreme bullish price action in June and July has clearly dissipated and unless this week trades significantly higher, we believe a top and correction will form near current prices.

iPath DJ-UBS Grains (JJG):
08/31/2012 Closing Price: 63.44
INTERMEDIATE TERM (I.T.) SIGNAL:
Intermediate Term Trend is bullish.
Current Position: LONG @ 62.25 on 08/20/2012; STOP @ 62.25
Current Upside Target = 70.95
Projected Weekly Range: 2.41
Trading 87,000 Shares; COVERED 17,400 @ 64.45,

I.T. ANALYSIS:

• Initial trade risk was $191,400 or .38%. Current trade risk is 0%. Current trade profits are $121,104 or .24%.
• JJG is concentrated in agricultural grain futures, holding 46% soybeans, 30% wheat and 24% corn.
• Last week’s trading range formed an inside bar to the previous week, meaning neither the high nor low was violated. Friday’s close near the midrange was only one tick lower than the previous week’s close. Similar ranges and nearly identical closes are not good signs for our current long position. Although the trends are very bullish, we believe grain markets may be overbought and looking for a near-term correction. Our current STOP is at 62.25, or entry position, guaranteeing a profitable trade. Note that trading 62.26 will confirm an I.T. top has formed; a weekly close below this price indicates a correction should follow.

SPDR Gold Shares (GLD):
08/31/2012 Closing Price: 164.22
INTERMEDIATE TERM (I.T.) SIGNAL:
Intermediate Term Trend is bullish.
Current Position: LONG @ 158.81 on 08/21/2012; STOP @ 158.81
Upcoming Cover Prices: SELL 10% @ Monday Open; SELL 20% @ 169.35
Current Upside Target = 165.88
Projected Weekly Range: 4.42
Trading 35,000 Shares

I.T. ANALYSIS:

• Initial trade risk was $139,650 or .28%. Current trade risk is $0. Current trade profits are $189,350 or .37%.
• GLD’s single holding is gold bullion.
• Price action was decisively bullish for the second week, closing at the weekly high tick of 164.22. On Friday, gold rallied up 3% off its intraday low, sending GLD back up and through the previous weekly high of 162.45. Although Friday’s price action is an extremely rare anomaly, trading should be higher this week, never retracing back to last week’s low of 159.56. Our current trade has performed well, even after a fill price 100 ticks higher than expected. We are issuing a SELL of 10% on Monday’s Open and another 20% if 169.35 is traded to further lock-in profits. Our upside price target, established on July 21, 2012 has achieved 86% of its upside objective. Once 165.88 trade, look for a revised price target to follow.

iPath DJ-UBS Copper (JJC):
08/31/2012 Closing Price: 43.74
INTERMEDIATE TERM (I.T.) SIGNAL:
Intermediate Term Trend is bearish.
Current Position: LONG @ 43.67 on 08/21/2012; REVERSAL SELL STOP @ 42.59
Upcoming Break-Even Price: 45.05; COVER 20%
Current Upside Target = 47.91
Projected Weekly Range: 1.56
Trading 128,000 Shares

I.T. ANALYSIS:

• Initial trade risk was $188,160 or .38%. Current trade risk is $138,240 or .28%. Current trade profits are $8,960 or .02%.
• JJC is an ETN that holds only a single commodity, the Copper High Grade futures contract.
• Copper’s price action last week was essentially nondirectional, although Friday’s intellectual rally could be an indicator for this week’s trading. JJC formed an inside bar to the previous week’s range and closed slightly above the midrange. We still have confidence copper will trade higher and continue this minor rally, but last week’s trading decreases the probability of a wild bullish move. If 45.05 trades this week, look to sell 25,600 shares, pocketing $35,328 in profits. Be mindful that our current position is against the I.T. and major term trends. We therefore believe a Sell Stop and Reversal Short Entry are appropriate at 42.59.

United States Oil (USO):
08/31/2012 Closing Price: 35.89
INTERMEDIATE TERM (I.T.) SIGNAL:
Intermediate Term Trend is bearish.
Current Position: SHORT @ 35.45; STOP @ 36.46
Upcoming Break-Even Price: 34.44; Cover 20%
Current Upside Target = 35.85 – 37.87*Extended Upside Objective
Projected Weekly Range: 1.21
Trading 159,000 Shares

I.T. ANALYSIS:

• Initial trade risk was $160,590 or .32%.
• USO seeks to replicate the spot price of WTI light, sweet crude oil and primarily holds futures contracts.
• We entered a short position on Monday’s gap lower open at 35.45 trading 159,000 shares. Friday’s gap higher open and strong close leaves us believing our current position could be stopped out early this week. Price action was bearish divergent, have a lower weekly range yet closing above the midrange and previous week’s close. Excluding Friday’s abnormal volatility, the first four trading days last week followed through as planned. If 34.96 trades this week a new I.T. top will form, indicating a correction has begun. Look for trading to be essentially nondirectional this week with the moderate possibility of trading slightly higher.

United States Natural Gas (UNG):
08/31/2012 Closing Price: 18.82
INTERMEDIATE TERM (I.T.) SIGNAL:
Intermediate Term Trend is bullish.
Current Position: SHORT @ 20.39 on 08/09/12. STOP @ 19.50
Upcoming Cover Price: 17.27; Cover 40,000
Current Downside Targets = 17.27 – 16.36
Projected Weekly Range: 1.15
Trading 100,000 Shares; COVERED 20,000 @ 18.35

I.T. ANALYSIS:

• Initial trade risk was $204,000 or .41%. Current trade risk is $0. Current trade profits are $166,400 or .33%.
• UNG seeks to replicate the price movement of NYMEX Natural Gas by holding futures contracts.
• UNG sold off early last week only to rally back up on Wednesday, Thursday and Friday. If buying continues, look to cover our current position. Our STOP has been moved lower to 19.50, locking in $112,000 or .22%. Price action was bearish divergent with a lower range yet higher close, indicating trading should be lower this week but with fairly high uncertainty. We have issued a large cover of 40,000 shares at 17.27, our downside objective, due to the very low probability of trading below 15.18. We believe the current UNG correction will NOT reverses the bullish trend and are therefore looking to enter a long position.