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Commodities Tumble But Could be Oversold

David Becker
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Commodities Tumble But Could be Oversold

Commodities were the strongest asset class during the first half of the year, but the second half has not been kind to the sector. The DB Commodities Tracking ETF (DBC) has declined since mid-June to the lowest level in five months. It has also fallen below its 200-day average. Most of the damage, however, has been seen in the agricultural group.

The DB Agricultural Fund (DBA) has dropped 6% during the same month. It is down much more since the start of May. The biggest losers in the DBA have been corn, soybeans, wheat, coffee, sugar, and cotton. The biggest reason for those losses was better weather conditions in the U.S. and Brazil, which will result in larger crop sizes. The DBA is now in oversold territory with the RSI (relative strength index) printing at a level of 28, which is below the oversold trigger level of 30 and could foreshadow a correction. The drop below the 200-day moving average will be hard to repair and there is a chance that the DBA consolidates before taking another leg lower and testing the February lows at 24.

Energy prices have also lost ground. The DB Energy ETF (DBE) has declined 5% over the last month. Increasing energy supplies in Europe and the U.S. have pushed energy prices lower during the month. Precious metals had been doing much better until Monday and Tuesday when the DB Precious Metals ETF (DBP) fell sharply. The DBP is now in the process of testing its 200-day moving average. Fears that Janet Yellen was going to sound more “hawkish” in her testimony before Congress was one of the reasons for the decline. The threat of rising rates is normally bearish for gold. Another possible reason is the recent selloff in European stocks and a weaker Euro.

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