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Analysis on DBA, COW & CUT

Member @foolstone requested my opinion on DBA (Agricultural ETF) & COW (Livestock ETN) & I figured that I'd thrown in my analysis on CUT (Timber ETF) while I'm at it.

DBA recently broke out above a descending price channel following a divergent low, rallying up to the 20.40ish resistance level & has been consolidating just below since. I view the recently consolidation has constructive as it has helped to alleviate the overbought conditions & should allow for a more sustained rally should DBA go on to break out above the 20.40ish level soon. The dotted horizontal support line around 19.87 has contained all pullbacks since that first target/resistance level was hit & although DBA may or may not get there again, if it does, that would provide an objective long entry with a stop placed somewhat below 19.75 which is the bottom of the April 28th gap.

DBA daily May 23rd

DBA daily May 23rd

While I'm near-term neutral & intermediate/long-term bullish on DBA, my outlook for COW somewhat tempers my bullishness on DBA. COW is comprised of 61.37% state in Live Cattle & a 38.63% weighting in Lean Hogs. DBA has a 17% weighting in Live Cattle & a 10% weighting in Lean Hogs, as such, COW accounts for about 17% of the performance of DBA , a substantial overlap. COW recently stopped cold at resistance with negative divergence on the PPO & very overbought on the RSI. It appears that one more thrust up towards that May 4th high is quite possible although I believe the R/R is skewed to the downside at this time.

COW daily May 23rd

COW daily May 23rd

My conviction isn't very strong on where COW is headed & it is quite possible that it is currently bull flagging (no pun intended) on the daily chart above & if so, an impulsive breakout above the flag as well as the 25.85ish resistance level could send the ETN quite a bit higher, even taking out the divergence that is in place on the PPO at this time. One other possibility that I can foresee would be a sideways consolidation below the 25.85ish resistance for a while with COW eventually breaking above that level & sparking the next leg higher in a bull market that started back in October. Regardless, the bulk of the remaining 83% of DBA is made up of various agricultural commodities which appear to be setting up for potential bullish trend reversals such as corn, soybeans, wheat, sugar, cocoa & coffee.

One commodity ETF that clearly appears to be setting up for a correction is timber. CUT (Timber ETF) looks like it's about to get chopped down on a break & close below this bearish rising wedge pattern & the 26.80ish support level. The chart of WOOD (another Timber ETF) looks very similar. My expectation is for a drop of at least 6% & quite possibly 13% in the coming months. If my analysis proves correct, a drop in timber prices will likely coincide with a slow down in new construction/home building.

CUT daily May 23rd

CUT daily May 23rd

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May 23, 2017 3:02pm|Categories: Gold & Commodities|Tags: , , , |2 Comments

2 Comments

  1. foolstone May 23, 2017 3:35 pm at 3:35 pm

    Thank you for the detailed analysis, Randy. Could you please post the chart of COW? So the support and resistance levels could be seen.

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    • rsotc May 23, 2017 3:44 pm at 3:44 pm

      Opps. I had mistakenly inserted a second copy of the DBA chart where I had intended to insert the chart of COW. I have updated the post & it should appear as the 2nd chart now.

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