The agricultural-commodity sector has thrown us a curve ball.
The last time we looked at the “ags,” we noted that the sector was overbought.
[ad#Google Adsense 336×280-IA]The PowerShares DB Agriculture Fund (DBA) was trading historically far above its 50-day moving average (DMA). It was approaching resistance.
And it looked poised for a short-term decline.
So I suggested taking profits in the sector and looking to rebuy the ags as DBA pulled back toward its 50-DMA.
Well… we got that pullback, and then some…
Take a look at this updated chart of DBA…
After peaking in mid-June, DBA pulled all the way back down to its 50-DMA. It bounced off that support… But the bounce formed a lower high and DBA fell again. This time, the 50-DMA failed to hold as support. So now it’s serving as resistance on any rally attempts.
But agriculture bulls still have one last chance.
DBA is sitting on the support line of its May lows. This is a logical spot to look for a bounce. DBA is also trading about 5% below its 50-DMA. It rarely strays much farther from that line before reversing.
But that bounce has to happen right now. If DBA loses support at about $20.75, then it’s likely to head lower and revisit its February low over the next several weeks.
On the other hand, if the ag sector can rally enough from here to push DBA back over the resistance of its 50-DMA, the young bull market I wrote about last month will remain intact.
Traders can jump back into the ag sector right now in anticipation of at least a short-term bounce. If a bounce doesn’t develop and DBA loses support, traders can sell DBA for a small loss.
But if the ags can bounce from here, we can target a quick move back up toward the 50-DMA. And if DBA can break above that resistance level on the next move, it could resume the intermediate-term bull market I wrote about last month.
Best regards and good trading,
Jeff Clark
[ad#stansberry-ps]
Source: Growth Stock Wire