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Technical Update - Commodities lead by metals are drawing the picture of a bull market. Commodity ETF's to trade
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: A technical look at some of the Commodity ETF's both US and London listed that could benefit from a bull market developing in the Base and Precious metals market
Today's Saxo Market Call podcast.
Today's Market Quick Take from the Saxo Strategy Team
The Bloomberg Commodities Index which tracks futures prices on physical commodities such as Energy, Soft Commodities and Base Metals and Precious metals has been in a corrective phase for the best part of a year now after a strong uptrend starting in 2020.
Illustrated here by the Invesco DB Commodity Index Tracker Fund DBC (further below its London listed Commodity ETF) it has formed a Descending triangle like corrective pattern. It is not yet confirmed and could also be a falling Wedge like pattern ( a falling wedge the price must touch the trendlines a total of 5 times)
Break out will confirm which one it is.
If breaking below 23.42 it is likely to be a falling wedge.
Currently the DBC is trying to break above its upper falling trendline and if closing above the correction could be over and DBC set to resume uptrend.
Medium-to longer-term uptrend will be confirmed by a close above 26.70.The corrective pattern currently being formed seems to be the 4th corrective wave ABC. If the correction is over and bull trend resumes we can estimate how high the DBC can potentially move.
5th wave often moves 1.618 projection of wave 4 i.e., to around 35.10 or 0.618 of wave 1+3 i.e., to around 35.92. If moving 0.618 of Wave 3 alone target is at 34.64.
However, 5 wave in commodities can become the longest one i.e., longer than wave 3. If that is the case here then DBC can move to 43.65. But let’s if we get above the above mentioned potential targets.
Monthly RSI is bullish with no divergence which indicates likely new highs i.e., supporting the bullish outlook.
If DBC closes below 23.42 the correction could be extended down to around 22-21.85 (dashed line on weekly chart) thereby potentially forming a falling wedge.
Weekly RSI is still positive (hasn’t closed below 40) with no divergence support the bullish trend to resume
European listed Commodity ETF
If you cannot trade the US based ETF it is also listed in London: Invesco Bloomberg UCITS EFT (CMOD:xlon) traded in USD. Strong support at 23 . A close above the falling trendline is like to resume uptrend. An uptrend that will be confirmed by a close above 25.41. CMOD has the same technical picture and will have same upside potential as the DBC i.e., approx. +40%.
A pureplay Metals ETF is Invesco DB Base Metals DBB:arcx (US Listed) or WisdomTree Industrial Metals AIGI:xlon (London listed)
They are both in an uptrend on medium-term.
AIGI:xlon if closing above 17.20 today Friday would be in a confirmed uptrend supported by RSI above 60. A double bottom pattern ahs been confirmed with potential target to around 18.76. However, there could be more upside potential. 0.618 retracement of the Q2 collapse at around 22.85 is not unlikely.
To demolish this picture a close below 15.65 is needed.
DBB:arcx has also formed a double bottom pattern and in a confirmed uptrend with RSI above 60 threshold. 200% of the double bottom pattern is at 23.90 and 0.618 retracement of the downtrend since Q2 2022 at 23.37.
However, there could be more upside. DBB has corrected 0.618 of the 2020-2022 bull market (Monthly chart) and seems set for higher levels. RSI showing positive sentiment with no divergence which indicates likely new highs. Possibly reaching 1.382 projection of the correction to around 30.35.
For DBB to demolish this bullish scenario a close below 17.48 is needed.
RSI divergence: When instrument price is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and an weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend
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