Commodity ETFs may be running out of steam

INTERMEDIATE TERM SIGNALS & MARKET ANALYSIS

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.
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