Wednesday, November 12, 2014

CRB Commodity Price Analysis and DBA Price Logic Trade Example

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This chart is the CRB commodity index with a weekly time frame showing the RSI.  Notice that the weekly RSI is oversold for the last few weeks.  Also notice the last time in early 2012 that a weekly oversold reading occurred, commodities rallied in extreme fashion in the coming few months.

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The is the CRB on a daily time frame.  Notice the RSI not moving above the 50 level during this decline.  However there is a building divergence in the RSI, which, if followed by a move in the RSI above 50, would be a likely sign of a breakout to the upside in my opinion.

Additionally, there are many commodities with either record net long commercial/smart money positions, and some with bullish divergence in the commercial/smart money net positions.  Coupled with the current oversold condition and daily time frame divergences across the board, I am suggesting to prepare for a major commodity board advance in coming months.

I have recently taken a position in DBA based upon a price logic set-up and a non-confirmation of DBA with the broad commodities.  So DBA recently made a higher bottom last week as the CRB was making a lower low.  This hints at strength in this index (DBA).

Click on Chart to Enlarge

This is the hourly DBA chart.   I entered at 25.52 with the original stop at 25.22.  The stop has now been moved up to 25.30.  If the price rally happens to retace above the Oct high in less time than the recent decline took to form, then I will hold the position and trail the stop on a daily time frame.  If price rally more slowly I will exit at any hourly divergence that forms at a lower high below the Oct high.  And obviously as I trail the stop up, it is possible that the position gets stopped out in the interim.

So we will see how this develops, but the general dual time frame set-up here with weekly over sold, daily bullish divergence, and a non confirmation from DBA all suggest a quality opportunity.  So I have just entered on the hourly chart for a position that could be a daily or weekly time frame hold.  Assuming prices rally, a simple scale out can be used, but I like to incorporate the price logic analysis into the trade follow through so that if a strong new trend occurs, I don't exit part of the trade on the smaller time frame.  That is why I plan to hold and use the daily chart trailing stop method if price rally quickly above the Oct high.


1 comment:

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