In his book Hot Commodities, legendary investor Jim Rogers says it’s time to sell a commodity when…
Instead of CEOs and (venture capitalists) in suspenders, you will see rich, smiling farmers and oil rigs on the covers of Fortune and Business Week. CNBC’s “money honeys” will be broadcasting from the pork-belly pits in Chicago, and the ladies down at the supermarket will be talking about how they just made a killing in soybeans.
The opposite holds true for buying commodities.
When you see farmers entering bankruptcy and looking for other work, you know it’s time to get in.
That’s happening in the grains market right now.
Last week, I told you that an oversupply of grains in the market had dropped prices so low that some farmers were abandoning their farms.
However, when farmers shut down their tractors, supply started to tighten… and the index that tracks grains spiked 80% and 118%—just over a year later.
Furthermore, we’re seeing increased demand for U.S. grains to use as cattle feed both domestically and internationally.
I told you on Monday this was due to disruptions in the global beef market caused by political crisis and a tainted meat scandal in Brazil, the world’s No. 1 exporter of beef.
I love to see fundamentals for a trade line up like this: We’re going to see a tightening supply and an increased demand for U.S. grains.
But there’s one last thing I like to see before entering a trade… the right timing. And I just got that signal, too.
Today, I’m going to tell you what it is…
The Signal We Were Waiting For
Last month, I explained that I liked to use trend lines to time entry and exit points for trades. If you need a refresher, check it out here.
Today, I’m going to show you what the trend line is saying about grains.
The iPath Bloomberg Grains SubTR ETN (JJG) is composed of futures contracts.
As you can see in the chart below, JJG has been in a five-year downtrend. But it just broke out.
This shows that JJG just started a brand-new uptrend…
And that means the proverbial “falling knife” has hit the floor. It’s now safer to pick it up.
With grains, we now have a perfect setup for a commodity trade.
Supply is decreasing. Demand is increasing. And a new uptrend has formed.
It’s time to buy grains. There are many ways to do this. You can buy grain ETFs, seed companies, or fertilizer companies.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
Nick’s Note: Today, we have a Chart Watch from my colleague Jeff Clark…
By Jeff Clark, editor, Market Minute
Gold stocks are on the verge of a large rally…
Last week, I mentioned that we now have three reasons to be bullish on the gold sector:
The Bullish Percent Index buy signal.
The bullish setup in the Commitment of Traders report.
And the GDX/Gold ratio chart has broken out to the upside.
For today, let’s look at the chart of the VanEck Vectors Gold Miners Fund (GDX) and try to figure out just how far this new rally can go.
Here’s an updated view of GDX…
There’s a lot going on in this chart. So let’s just take it one step at a time.
First off, notice that the last significant intermediate-term rally—when GDX clearly shifted from bearish to bullish—started in mid-December last year and ended in early February. It lasted about seven weeks, and it was good for a $7 rally in GDX shares.
If the current rally follows the same script, then it should last until late August—which is seven weeks from the low point in early July—and GDX should peak somewhere near $28.
But that’s a big “if.” The gold sector has to overcome several resistance levels in order to achieve that target price.
You can see that GDX is currently bumping into the resistance line of its recent trading range (the blue lines on the chart).
A decisive close above $23.20 per share would signal a breakout from this pattern and would likely trigger a move up to the next resistance line at about $24.
I expect that could happen this week because… well… we have the three reasons to be bullish listed above.
Plus, if you look closely at the chart, you’ll notice the 9-day exponential moving average (EMA) closed Friday just above the 50-day moving average (MA). This sort of “bullish crossover” often marks the start of a strong intermediate-term rally.
The momentum is now bullish for the gold sector. We should see higher prices this week.
As long as the 9-day EMA holds above the 50-day MA on any pullback, then there’s still a good chance of the stock hitting that $28 price target.
August should be a good month for the gold sector. Traders should be looking to add gold stock exposure on any weakness.
P.S. If you’d like to receive my free daily market insights, Jeff Clark’s Market Minute, click here and I’ll automatically add you to my list. You’ll also receive a link to my “Guide to Options Trading” just for signing up. This free report will teach you how to trade options the right way… and dramatically boost your overall returns.
We’re on the cusp of the biggest defense budget boost since World War II…
The last time this much money poured into our military, investors had the historic chance to turn $1,000 invested into $550,000…