These Charts Suggest Commodities Are Headed Higher (DBB, DBP)

Many bearish commodity traders have been anticipating a pullback for several weeks now. As underlying prices have continually marched toward the resistance of their 200-day moving average, most active traders were expecting this significant level of resistance to push prices lower. However, instead of sharp declines, the prices of major commodity-related assets have broken above the resistance levels and look poised for a longer-term move higher. In the article below, we’ll take a look at the charts and see where we could be headed to from here. (For more, see: Commodities: Introduction.)

PowerShares DB Commodity Index Tracking Fund

When it comes to investing in the broad commodity market, there are few exchange-traded funds more popular than the PowerShares DB Commodity Index Track Fund (DBC). In case you don’t follow this fund, its managers seek to track the performance of a broad basket of fourteen of the most heavily traded physical commodities. Taking a look at the chart below, you can see that the bulls recently pushed the price above the resistance of the 200-day moving average. This technical breakout is often used as a long-term signal of a reversal in the trend and at this stage, most traders will be watching for a move toward the next level of resistance near $16. A close above the upper trendline would likely confirm the reversal and mark the beginning of a major uptrend. (For more, see: An Overview of Commodities Trading.)

PowerShares DB Precious Metals Fund

As many of you know, precious metals have been leading the commodity markets higher and based on the charts of key assets it doesn’t seem like this story will change anytime soon. One of the most popular funds that is used by active traders for gaining exposure to this segment is the PowerShares DB Precious Metals Fund (DBP). Based on the chart shown below, you can see that the 50-day moving average crossed above the 200-day moving average in early March. This is a common technical long-term buy signal, and the price action that has followed suggests that the trend is indeed reversing. This thesis is confirmed again based on recent price action. Notice how the bulls sent the price above the swing high of $28.51 and how it did not break below the support of the 50-day moving average. From a technical perspective, there is little resistance standing in the way of a continued move higher.(For more for on this topic, see: How to Invest In Commodities.)

PowerShares DB Base Metals Fund

When it comes to commodities, there are few areas that illustrate the strength of the global economy than the base metals. Prices of metals such as zinc, copper and aluminum are key to economic growth and based on the chart of the PowerShares DB Base Metals Fund (DBB), we could be headed into a period of expansion rather than contraction like many in the media predict. Taking a look at the chart below, you can see that the 50-day moving average has recently crossed above the 200-day moving average. This is a common technical buy signal known as the golden cross and is often used to mark the shift in a major trend. Active traders will likely maintain a bullish outlook on base metals until the price closes below $12.43. (For more, see: Commodities That Move The Markets.)

The Bottom Line

Commodity traders have been punished over the past several years, but based on the charts of several key exchange traded funds it seems that the story is changing. The recent moves above critical long-term resistance levels could suggest that the long-term trend is reversing and that we could be headed higher from here. Many will likely set their stop-losses below the identified support levels. (For more on this topic, check out: Which Way Are Commodity Prices Headed?)

These Charts Suggest Commodities Are Headed Higher (DBB, DBP)