Metals, grains ETFs face possible downside corrections

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.

I.T. ANALYSIS:

• FXE seeks to track the movement of the Euro currency.
• After stopping out our long position the previous week, FXE experienced strong support last week. Price action was bullish and confirmed by Friday’s strong close above the midrange, above the open and significantly above the previous week’s close. FXE never traded 127.45 and thus avoided the formation of an I.T. correction. Strong buying and failure to trade lower last week has resulted in the upcoming trade entry to buy 50,000 shares at 128.87, if FXE provides this opportunity. We believe the euro will climb higher as the ECB continues to provide financial stimulus to struggling economies. A second week of higher trading will result in the revision of our current targets to the upside.

iShares MSCI Emerging Markets Index (EEM):
10/05/2012 Closing Price: 41.95
INTERMEDIATE TERM (I.T.) SIGNAL:
Intermediate Term Trend is bullish.
Current Position: FLAT
Current Upside Target = 48.19 – 49.23
Projected Weekly Range: 1.04
Trading 135,000 Shares

I.T. ANALYSIS:

• EEM seeks to replicate the performance of the MSCI Emerging Markets Index by investing in the underlying international securities.
• After two weeks of lower trading, EEM found moderate support last week, keeping prices above 41.30. The higher high and higher low formed bullish price action and Friday’s close slightly above the midrange, above the open and above the previous close confirmed the price action. The last three weeks have traded within the single weekly range of four weeks ago, neither making new highs nor violating its low. This sideways trending pattern can be seen in many other markets, indicating a certain level of investor uncertainty. Current indicators point to higher trading this week, yet strong resistance and heavy selling pressure should keep EEM below 42.83 for the near future.

SPDR S&P 500 (SPY):
10/05/2012 Closing Price: 146.14
INTERMEDIATE TERM (I.T.) SIGNAL:
Intermediate Term Trend is bullish.
Current Position: FLAT
Current Upside Targets: 154.21 – 159.39
Projected Weekly Range: 2.73
Trading 39,000 Shares

I.T. ANALYSIS:

• SPY seeks to track the movement of the S&P 500 Index.
• The bearish correction confirmed the previous week was tested last week with bullish price action and a strong weekly close. After two weeks of strong selling pressure, SPY rallied back to set up the continuation of the summer rally. Although SPY has officially confirmed a correction, such a short one is often considered a false top when price quickly rally back up. If this week trades higher and closes strong, we will consider the previous two weeks only a sell-off. Prices should remain relatively steady for the coming month; expect slightly higher prices until the election. Our current upside targets, though aggressive, could be achieved by the end of this year, especially if Romney is elected President. Over the last eight weeks, ETF analysis and trading has resulted in $1,594,589 (3.19%) in total profits, $671,437 of which is closed and locked-in.

Parrish-Hicks YTD Performance Report