From Taki Tsaklanos: Agricultural markets looked very bullish in February when we wrote 3 reasons why agricultural commodities could start a new bull market. Interestingly, since then, they did break out only to retrace in March.
Early April, the agricultural index GKX (see chart) is back in its bearish area.
As a reminder, the agricultural commodities that are part of the GKX index are Wheat, Corn, Sugar, Soybean, Coffee, Cocoa, Cotton.
This is a classic case of a false breakout. Things looked quite bullish after the breakout though.
Comparing the 2016 false breakout (see purple circle at 330 points on the chart) with the one in March, it is clear that the recent one looked much more solid. Still, the breakout did not hold.
Right now, the agricultural index is just 2 percent away from a major support area. The 280 level in GKX has held for +20 months. It is imperative for the sector to successfully overcome this test, otherwise agricultural stocks will go much lower in 2017.
This case also proves that investors need to stay alert, in all circumstances, no matter how bullish or bearish things look.
In closing, we want to note that our selection of 3 agriculture and potash stocks should also be monitored closely for breakdowns. In particular, Potash Corp is going through an important test. Investors better be alert on what is happening in the agriculture space and in Potash Corp in particular.
The PowerShares DB Agriculture Fund (NYSE:DBA) closed at $19.58 on Friday, up $0.02 (+0.10%). Year-to-date, DBA has declined -1.95%, versus a 5.22% rise in the benchmark S&P 500 index during the same period.
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