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Larry’s note: Welcome to Trading with Larry Benedict, my free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us. My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row. And, I’m featured in the book Market Wizards, alongside investors like Paul Tudor Jones. But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it… |
The rising cost of food has hit most people hard.
Food inflation has seen the price of meats, dairy products, and coffee rise strongly across the board.
When we checked out the Invesco DB Agriculture Fund (DBA) around a month ago (red arrow on the chart below), agricultural commodities were already rising. In fact, this increase is a major cause of food inflation.
While it only became a news story around the start of the year (when food inflation began to accelerate), agricultural commodities have been in an uptrend for almost two years…
DBA is now trading around 70% higher than its early 2020 lows.
After being stuck in a sideways pattern since March, today I want to discuss what’s next for DBA.
The chart is starting to look interesting again…
Invesco DB Agriculture Fund (DBA)
Source: eSignal
The 50-day moving average (MA – blue line) shows DBA’s long-term uptrend.
You can also see how that uptrend began to accelerate since early this year.
As the 50-day MA rose gradually, the 10-day MA (red line) started to move further and higher away.
When we looked at DBA last time, we noted that when the RSI formed a ‘V’ and bounced off its support level in both January and February that DBA went on to make a new high.
After peaking at ‘A,’ – when the Relative Strength Index (RSI) went into overbought territory above the upper grey line and formed an inverse ‘V’ – DBA retraced and then went into its current range-bound pattern.
On March 14, I wrote that the upcoming key test for DBA would be looking at what happens next with the RSI…
And if the RSI held support and regained momentum, DBA could then re-test and break above its March high at $22.64 (orange line).
Since writing about DBA, the RSI has since tested and held support three times. First on March 16, then on March 29, and finally on April 1.
Let’s take another look…
Invesco DB Agriculture Fund (DBA)
Source: eSignal
With the RSI showing buying momentum again, what am I expecting from here?
Well, the next major test revolves around that $22.64 high. A break above this – along with the 10-day MA again accelerating above the 50-day MA – could potentially see DBA trade above $23 (and potentially higher) over the coming weeks.
Although it’s still early, a breakout higher (and therefore a long trade) looks promising.
While there will be pullbacks along the way (as we saw recently from the March high), the uptrend remains intact for now.
Until the RSI breaks back below support and stays there, it remains hard to see what will bring this long-term rally to an end.
That means not only will food keep getting more expensive… It will also keep adding to inflation pressures. And, add further momentum to the rising interest rate cycle ahead.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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