Metals, grains ETFs face possible downside corrections

INTERMEDIATE TERM SIGNALS & MARKET ANALYSIS


ETF ANALYSIS FOR:

DBA – JJG – GLD – JJC – USO – UNG – FXE – EEM – SPY

KEY TERMS

OVB:  Outside Vertical Bar
VRCB: Volatility Reduced Compression Bar

Core Position: $50,000,000
Current Profits:
$1,594,589 (3.19%)
(UNLEVERAGED and FULL SHARE VALUE)

PowerShares DB Agriculture (DBA):
10/05/2012 Closing Price: 29.13
INTERMEDIATE TERM (I.T.) SIGNAL
:
Intermediate Term Trend is bullish.
Current Position: FLAT
Current Downside Targets = 28.59 – 28.34
Projected Weekly Range: .78
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.
  • After confirming the end of a strong rally, DBA traded within a restricted range last week. Neither the previous week’s high nor low was violated, creating an inside vertical bar. Although the price action was nondirectional, Friday close in the bottom 10% of the weekly range leads us to believe trading will be to the downside this week. Expect the correction to continue lower, finding support within our current downside target range. Our longer-term outlook still places commodities at higher prices. We will evaluate long trade entries once DBA trades down to our price targets.

iPath DJ-UBS Grains (JJG):
10/05/2012 Closing Price: 58.33
INTERMEDIATE TERM (I.T.) SIGNAL
:
Intermediate Term Trend is bullish.
Current Position: FLAT
Current Downside Targets = 56.94 – 55.80
Projected Weekly Range: 2.74
Trading 87,000 Shares

I.T. ANALYSIS:

  • JJG is concentrated in agricultural grain futures, holding 46% soybeans, 30% wheat and 24% corn.
  • Wheat and corn trended sideways last week, while soybeans continued to trade lower, resulting in a slightly bearish week for JJG. Price action was nondirectional and Friday’s close in the lower half of the midrange, below the open and below the previous close are all bearish indicators. Expect this week to trade primarily within last week’s range with a bias toward the downside. Currently in a confirmed correction, we believe the grains will continue lower but find strong support near the $56 price level. This means prices only have another $2-$3 to fall before rebounding where a rally is expected to begin.

SPDR Gold Shares (GLD):
10/05/2012 Closing Price: 172.62
INTERMEDIATE TERM (I.T.) SIGNAL:

Intermediate Term Trend is bullish.
Current Position: LONG @ 158.81 on 08/21/2012; STOP @ 170.05 OR Weekly Close Below 171.59
Upcoming Cover: COVER 3,500 (10%) @ Monday’s Open

Current Upside Target = 165.88 – 176.15: COVER 7,000 (20%)
Projected Weekly Range: 3.29
Trading 35,000 Shares; COVERED 3,500 (10%) @ 164.12, COVERED 7,000 (20%) @ 169.35

I.T. ANALYSIS:

  • Initial trade risk was $139,650 or .28%. Current trade risk is $0. Current trade profits are $430,710 or .86%.
  • GLD’s single holding is gold bullion.
  • After seven weeks into our long GLD trade, current profits stand at over three times our initial risk. Locked-in profits are over $300,000 and there is zero chance of losing money on the trade. Price action was bullish divergent last week, closing slightly below the weekly midrange. The restricted trading range resulted in a Volatility Reduced Compression Bar, a result of buying pressure becoming neutralized by an increase in selling pressure. Last week also marked the violation of a long-term high established on February 28, 2012, trading up seven cents over 174 then falling back down on Friday. The formation of a VRCB at the top of a rally after violating a long-term high and closing below its midrange is a strong indicator an I.T. top may be forming. If 171.58 trades before 174.08, pay close attention to the current trade exits.

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