Commodity ETFs Are Catching Fire

• ByDeron Wagner,
• On 2:00 pm EDT, Friday October 23, 2009

In my Oct. 9 commentary, I addressed the breakout of PowerShares Base Metals above a level of horizontal price resistance that was propelling it to a new 52-week high. Here's an excerpt:

However, over the next few days, DBB could gently pull back to form a "bull flag" pattern at the test of the high of its range. If it does, one could buy the first gap above the upper channel of the bull flag pattern. Entering in this manner is probably safer than entering on the initial breakout here.

Thereafter, DBB indeed pulled back for a few days, then gapped to a new high. The daily chart of DBB is shown below:

DBB Daily (NYSE) PowerShares DB Base Metals Source: TradeStation

The breakout level in DBB, around 19.20, should now act as the new support on any pullback. Therefore, a pullback to near the breakout level presents a secondary buy entry point, in case you missed the initial breakout entry. If already long DBB, you can place a protective stop just below the 50-day moving average (presently at 18.39). Shorter-term traders could use the 20-day exponential moving average (presently at 18.93) as a guide for trailing a stop.

In addition to DBB, a plethora of other commodity ETFs have caught fire. While the main stock market indices have been consolidating in a range for the past week, many commodity ETFs have been cruising to new 52-week highs. Because they're a bit extended in the short-term, most are not buyable at current levels. However, within the next one to two weeks, there's a good chance we'll see a substantial pullback in these ETFs, which will create a decent buying opportunity.

Here are the charts of two other commodity ETFs buyable on a pullback:

USO Daily (NYSE) United States Oil Source: TradeStation

DBA Daily (NYSE) PowerShares DB Agriculture Source: TradeStation

With spot gold recently breaking out and holding above the $1,000 level, SPDR Gold Trust has been in a period of consolidation. However, it looks like it may soon break out to make another leg higher. The same is true of iShares Silver Trust. The charts of both are shown below:

GLD Daily (NYSE) SPDR Gold Shares Source: TradeStation

SLV Daily (NYSE) iShares Silver Trust Source: TradeStation

The shipping sector has been showing relative strength lately, and the sole ETF that tracks the sector, Claymore Global Shipping, is breaking out above the upper channel of a "pennant" formation on its weekly chart. This type of formation is neither bullish nor bearish; rather, it's a continuation pattern. But since SEA has been in an uptrend since March, the pennant favors the odds of an upside break, which appears to be happening now:

SEA Daily (NYSE) iShares Silver Trust Source: TradeStation

In my last commentary, I also pointed out the bullish pattern in FirstTrust Natural Gas. Specifically, I said: "Now, FCG is testing its prior high, and showing good relative strength to the broad market." Since then, FCG has been trending higher and is trading at a new 52-week high. As long as its uptrend remains intact, every pullback to its 20-day exponential moving average, or the lower channel support of its uptrend, is buyable.

Buzz up!