One of the readers asked me for my take on the Agriculture sector. I was glad to cover it, because this sector presents an interesting dilemma to the investor. Seasonal tendencies for agriculture, according to my pal Brooke Thackray, suggest a buying opportunity from August until the end of the year.
The dilemma for investors is the polar opposite trends between the agricultural commodity index, as illustrated by the weekly chart of DBA above, and the agricultural stocks, as illustrated by the COW ETF chart below. Agriculture commodities look terrible, whereas agriculture stocks look great.The downtrend is obvious for DBA. To summarize the obvious: Lower highs and lows (downtrend), moving average death cross, and no consolidation pattern in sight at this time. This ETF tells us that the ag. commodities are something to be avoided until further notice.
Conversely, the weekly chart for the equities (COW) suggest that the trend is favorable for agriculture stocks. A long termed uptrend is in place, and the recent consolidation (as marked on the daily chart below) shows us a nice breakout. Moneyflow is a bit flat (top and bottom panes on the daily chart) and momentum is approaching overbought on the short term – again seen on the daily chart. But overall, the picture is good for this sector ETF. It will probably be a good buy on a pullback.
I rarely see this kind of divergence between commodity sensitive stocks and their underlying commodities. But, the charts don’t lie. It’s obvious at this point that those who wish to consider the agricultural sector should stick with the equities.
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3 Comments
Keith,
Thanks for the insight. I find it interesting that the fertilizer stocks for a sector and their underlying commodities can move in opposite directions. I guess it’s just like stocks vs gold stocks or natural gas vs. energy stocks.
Yes it is strange how this happens in some of the commodity sectors.
Thanks,
Eric*