Economic uncertainty marked by spikes in volatility in recent weeks has renewed the interest of many investors towards hard assets such as base metals. Recent price action shown on the charts of several key commodity-related exchange-traded funds suggests that the final days of 2016 could prove to be a strategic entry point for those willing to take a risk. (For more, see: Investing In The Metals Markets).
PowerShares DB Commodity Index Tracking Fund
When it comes to commodities trading, one of the most popular products utilized by retail investors is the PowerShares DB Commodity Index Tracking Fund (DBC). In case you aren’t familiar, this fund is comprised of futures contracts on fourteen of the most heavily traded physical commodities, and as you can see from the chart below, recent weakness has sent the price of the fund toward the long-term support of its 200-day moving average. In technical analysis, the 200-day moving average is one of the most significant levels that is used to determine the long-term direction of the trend, and the recent close near $14.35 is creating one of the most lucrative risk/reward setups of 2016.
Technically speaking, the sideways price action over the past few recent sessions is signaling that the support is stronger than many think and a move away from the support and back toward the swing high of $15.45 before the end of the year could be in the cards. (For more, see: Top 5 Metal Mining Stocks of 2016).
iPath Bloomberg Copper Subindex
One of the strongest performing assets in the commodities market in recent weeks has been that of copper as shown by the chart of the iPath Bloomberg Copper Subindex Total Return ETN (JJC). More specifically, commodity bulls have pushed the price sharply higher after the results of the U.S. presidential election because of the likelihood of increased infrastructure spending. As you can see from the five-year chart below, the recent surge higher has caused a bullish crossover between the 50-day and 200-day moving average, which is a standard long-term technical buy signal known as a golden cross. This bullish crossover combined with the break above a key long-term descending trendline puts the trend squarely in favor of the bulls, and many will likely maintain a bullish outlook until the price closes below the support near $24.84. (For more on this subject, check out: Forget Gold – Base Metals Are Back).
PowerShares DB Base Metals Fund
When it comes to the metals markets the precious metals get all of the attention. Industrial metals or base metals such as copper tend to be ignored, but as discussed recent developments have made a strong case for many to consider adding exposure to this segment. One product in particular that could be worth a closer look is the PowerShares DB Base Metals Fund (DBB). As you can see from the chart, the price has been slowly trekking higher since the start of spring, and the recent surge in upward momentum suggests that the move is not near being over yet. Based on technical analysis, the upward sloping 200-day moving average suggests that the long-term trend is in its early stages and 2017 could prove to be the year that many base-metal investors having been waiting for. (For more, see: Base Metals Are Starting To Shine).
The Bottom Line
The prices of many hard assets such as the base metals have found themselves trading near significant levels of support. Based on the charts discussed above, it looks as though the lucrative risk/reward setups are creating ideal opportunities for active traders to establish positions before the momentum continues in 2017. (For more, see: Can Industrial Metals Make A Comeback?)
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