If you missed the chance to buy agricultural commodities when I first wrote about them last month, you’re in luck.
You have a terrific, low-risk opportunity to buy them right now.
[ad#Google Adsense 336×280-IA]Two weeks ago, the PowerShares DB Agriculture Fund (DBA) was extended far above its 50-day moving average (DMA). That was an overbought condition.
So even though the young bull market in the “ags” still had plenty of room to work higher over the longer term, I suggested that short-term traders take profits in the sector.
Then, as I said, we could look to buy back into the sector after a quick pullback.
We got that pullback last week…
Take a look at this updated chart of DBA…
You can see how far DBA was extended above its 50-DMA two weeks ago. It was also approaching the resistance of last July’s high at just more than $23.25 per share, marking a reasonable spot at which to take profits in anticipation of a short-term pullback.
I noted at the time, though, that there was no negative divergence on the moving average convergence divergence (MACD) momentum indicator. In other words, as the price of DBA moved higher, the MACD indicator moved higher as well. That type of action indicates a strong trend – one that should resume after any brief pullback.
On Friday, DBA closed at $21.63 per share. That’s just above the double support of the 50-DMA ($21.51) and the breakout point from which the most recent rally began ($21.50).
This is a low-risk area for traders to jump back into agricultural commodities.
If the rally in agricultural commodities is for real, DBA should not drop back down to less than $20.75 per share. Traders can buy DBA right here near support. We can set a stop on the trade at just less than the $20.75 level in order to limit any losses. And we have an immediate upside target at $23.25 per share.
So if you missed the chance to buy into this sector on my advice in May – or if you took profits on the trade two weeks ago – the recent pullback provides a great chance to get into this trade today.
Best regards and good trading,
Jeff Clark
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Source: Growth Stock Wire