After a two-year rally that generated a 75% gain, the Invesco DB Agriculture Fund (DBA) topped out in May last year.
From there, it took just two months to fall 16%.
DBA tried to rally off its July 2022 low but then rolled over again. It spent the rest of 2022 drifting lower.
Yet all that changed in January this year. A fresh upswing in buying momentum caused DBA to rally strongly.
Today, I want to check in on that rally and see how things might play out from here…
A Classic Bullish Pattern
On the left-hand side of the chart below, the 50-day Moving Average (MA, blue line) shows the end of DBA’s downtrend.
The 10-day MA (red line) bullishly broke above the 50-day MA in late August. But that move ultimately failed. DBA rolled over and headed lower.
Invesco DB Agriculture Fund (DBA)
Source: e-Signal
That steady fall coincided with the Relative Strength Index (RSI) falling below support (green line) and tracking in the lower half of its band.
Yet as we came into 2023, that negative momentum started to wane.
DBA’s down move reversed. And the RSI made a series of higher lows (red line) from just above oversold territory (lower grey dashed line).
From there, DBA made a fresh high at ‘1’ before retracing. The RSI also reversed (left orange circle) from near overbought territory (upper grey dashed line).
From there, though, DBA developed into a textbook uptrend. The higher low at ‘2’ turned into a higher high at ‘3.’ Then DBA again retraced along with the RSI (orange circle).
This pattern repeated with DBA’s move from another higher low (‘4’) to a higher high at ‘5.’
Take another look:
Invesco DB Agriculture Fund (DBA)
Source: e-Signal
Throughout this uptrend, also notice the action of our two MAs…
The 50-day MA has been steadily trending higher since the rally began. The 10-day MA has accelerated above the 50-day MA with each new leg higher.
And DBA’s recent move higher from ‘6’ is seeing the same pattern play out.
Yet DBA is now trading higher than its initial spike at the start of the Ukraine War. It’s within a dollar of its May 2022 high.
So what am I expecting from here?
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Potential Mean Reversion
DBA recently broke above its recent higher high at ‘5.’ So for now, its bullish pattern is still intact…
We’ll be able to gauge the strength of DBA’s ongoing rally by the rate at which the 10-day MA accelerates above the 50-day MA and by the action of the 50-day MA.
But we’ll need to keep a watch out for any pullback.
The RSI has recently gone into overbought territory (red circle). And what happens around here will be key…
If the RSI reverses – as it has throughout this rally (orange circles) – then DBA could lock in its next higher high at ‘7.’
That reversal could then set us up for a potential mean reversion trade to the short side.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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