Three C’s of Commodities Enter Seasonal Sweet Spot

ETF Trends

To clear that up, copper is not included here, but three other commodities starting with the letter “C” – coffee, corn and cotton — are.

On a year-to-date basis, the iPath Dow Jones-UBS Cotton Total Return Sub-Index ETN (BAL) is slightly higher, but the Teucrium Corn Fund (CORN) and the iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (JO) have plunged. JO was down 33.5% for the year at the start of trading Tuesday while CORN had tumbled 30.1%. [Coffee ETN Could Continue to Taste Bitter]

BAL is off almost 7% in the past three months. On the surface, it may appear that down is the path of least resistance for these commodities, but seasonal trends say something different. Starting with BAL, things are starting to look up.

“As you can see in November we have found some support at the previous 2013 low. Over the last few weeks we’ve tested the $48 level twice while the Relative Strength Index, show in the top panel, has been rising. These types of positive divergences in momentum indicators are great signs that selling might be getting exhaustive. On Monday we saw strong price action as BAL tested its 20-day exponential moving average (EMA). If we see a break of this moving average with strong volume then we could see the start of a trend change for the cotton market,” writes technical analyst Andrew Thrasher.

Thrasher goes on to note that cotton futures usually find a bottom in November “with prices rising on average until March.”

Cotton’s seasonal strength is confirmed by this chart, courtesy of Eagle Bay Capital President J.C. Parets.

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Chart Courtesy: Eagle Bay Capital

Two more charts, also courtesy of Parets, indicate that now could be the time to consider CORN an JO as well. There is something to commodities seasonality. Both ETNs are higher in the past week, led by a 1.6% gain for JO. CORN is up 1% Tuesday. Corn is first followed by coffee.

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Charts Courtesy: Eagle Bay Capital

Traders that cannot decide between coffee, corn and cotton have options as well. The $1.33 billion PowerShares DB Agriculture Fund (DBA) tracks an index that allocates nearly 24% of its weight to coffee and corn futures. The GreenHaven Continuous Commodity Index Fund (GCC) offers exposure to 17 commodities on an equal-weight basis. Coffee, corn and cotton are all included among GCC’s holdings. 

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