ETFs that refer to the goods .
When most traders want to check on the recent performance or forecast the future direction of the commodities market they generally turn to mainstream media. There seems to be no end to the amount of commentary about where the price of gold, oil or other widely followed commodities are headed next. Rather than following the herd, one option, which is often neglected, is to check the chart of key tracking funds. For those who don’t know, a tracking fund is a basket of assets that is specifically architected by the fund managers for the purpose of being as closely correlated to an underlying index as possible. In the article below, we’ll take a look at the charts of a popular commodity tracking fund and other related assets to see where commodities could be headed next. (For more, see: Commodities: Introduction.)
DB Commodities Tracking Index Fund
As mentioned above, one of the most commonly used tracking indexes by those seeking to analyze the commodity markets is the DB Commodities Tracking Index Fund (DBC). This fund is comprised of futures contracts on fourteen of the most heavily traded and important physical commodities in the world. More specifically, overweight positions are held in Brent crude, gold, light crude and gasoline. Taking a look at the chart below, you can see that the bears have dominated the momentum over the past year. Notice how the nearby trendline and 50-day moving average have influenced the price and have prevented a sustainable move higher. Active traders will likely look to place a short order as close to the trendline to maximize the risk/reward of the trade. Stop-loss orders will likely be placed directly above the 200-day moving average, which is currently trading at $15.03.(For more, see: These 3 ETFs Suggest Commodities Are Headed Lower.)
iShares Commodities Select Strategy ETF
Another fund that many active traders have been turning in order to forecast the future direction of the commodities market is the iShares Commodities Select Strategy ETF (COMT) because of its focus on the broad market. This fund provides a great level of exposure to commodity producers and carries a reasonable expense ratio of 1.48%. The fund has total net assets of over $250 million and is currently comprised of 168 holdings. Taking a look at the chart, you can see that the downtrend line looks nearly identical to the one highlighted above, and it has also dominated the direction over the past year. Many active traders interpret this chart pattern to mean that the downtrend will likely continue for longer than many bulls are hoping.(For more, see: Commodities Are Set Up For A Continued Move Lower.)
PowerShares DB Multi-Sector Commodity Trust Metals Fund
One of the most lucrative segments of the broad commodities market is that of the base metals. As you may know, aluminum, zinc and copper are great indicators of the state of the global economy. Demand for these assets is strongly correlated to expansion and growth in key areas and nations around the world. Taking a look at the chart below, you can see that prices are up off the bottom and that they have some room to move before testing the resistance of the descending trendline. However, it is obvious that the trend is downward and given the five-year scale on the chart, it doesn’t seem like this trend is about to reverse anytime soon. (For more, see: The Downtrend In Precious Metals Is Poised To Continue.)
The Bottom Line
The news tends to be one of the most popular methods for most traders to get information about the performance and future direction of key commodities. Checking out the performance of select exchange traded funds that are specifically designed to track commodities, such as those listed above, is a lost art. Based on the patterns shown above, the outlook might not be as bright as some news stories might suggest. (For related reading, see: Commodities Are Pulling Brazil and Chile Lower.)
When most traders want to check on the recent performance or forecast the future direction of the commodities market they generally turn to mainstream media. There seems to be no end to the amount of commentary about where the price of gold, oil or other widely followed commodities are headed next. Rather than following the herd, one option, which is often neglected, is to check the chart of key tracking funds. For those who don’t know, a tracking fund is a basket of assets that is specifically architected by the fund managers for the purpose of being as closely correlated to an underlying index as possible. In the article below, we’ll take a look at the charts of a popular commodity tracking fund and other related assets to see where commodities could be headed next. (For more, see: Commodities: Introduction.)
DB Commodities Tracking Index Fund
As mentioned above, one of the most commonly used tracking indexes by those seeking to analyze the commodity markets is the DB Commodities Tracking Index Fund (DBC). This fund is comprised of futures contracts on fourteen of the most heavily traded and important physical commodities in the world. More specifically, overweight positions are held in Brent crude, gold, light crude and gasoline. Taking a look at the chart below, you can see that the bears have dominated the momentum over the past year. Notice how the nearby trendline and 50-day moving average have influenced the price and have prevented a sustainable move higher. Active traders will likely look to place a short order as close to the trendline to maximize the risk/reward of the trade. Stop-loss orders will likely be placed directly above the 200-day moving average, which is currently trading at $15.03.(For more, see: These 3 ETFs Suggest Commodities Are Headed Lower.)
iShares Commodities Select Strategy ETF
Another fund that many active traders have been turning in order to forecast the future direction of the commodities market is the iShares Commodities Select Strategy ETF (COMT) because of its focus on the broad market. This fund provides a great level of exposure to commodity producers and carries a reasonable expense ratio of 1.48%. The fund has total net assets of over $250 million and is currently comprised of 168 holdings. Taking a look at the chart, you can see that the downtrend line looks nearly identical to the one highlighted above, and it has also dominated the direction over the past year. Many active traders interpret this chart pattern to mean that the downtrend will likely continue for longer than many bulls are hoping.(For more, see: Commodities Are Set Up For A Continued Move Lower.)
PowerShares DB Multi-Sector Commodity Trust Metals Fund
One of the most lucrative segments of the broad commodities market is that of the base metals. As you may know, aluminum, zinc and copper are great indicators of the state of the global economy. Demand for these assets is strongly correlated to expansion and growth in key areas and nations around the world. Taking a look at the chart below, you can see that prices are up off the bottom and that they have some room to move before testing the resistance of the descending trendline. However, it is obvious that the trend is downward and given the five-year scale on the chart, it doesn’t seem like this trend is about to reverse anytime soon. (For more, see: The Downtrend In Precious Metals Is Poised To Continue.)
The Bottom Line
The news tends to be one of the most popular methods for most traders to get information about the performance and future direction of key commodities. Checking out the performance of select exchange traded funds that are specifically designed to track commodities, such as those listed above, is a lost art. Based on the patterns shown above, the outlook might not be as bright as some news stories might suggest. (For related reading, see: Commodities Are Pulling Brazil and Chile Lower.)
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