PowerShares DB Agriculture Fund (DBA)
Key Statistics
Minor Support Level 15.82 Minor Resistance Level 17.35
Major Support Level 13.94 Major Resistance Level 38.16
Minor Buy Signal 17.93 Minor Sell Signal 15.42
Major Buy Signal 42.16 Major Sell Signal 12.83
BRIEF OVERVIEW – DBA ETF
For the first time in eight years, it appears that commodities could be in the early stages of a new cyclical bull market. Many commodities enjoyed an incredible bull run from 2001 through 2012. In fact, it was one of the most powerful bull markets in the history of commodities. Please review the following table.
Commodity Markets
Price Performance (2001 – 2011)
Commodity 2001 Low 2012 High % Increase
Silver 4.01 37.58 837.2%
Gold 255.0 1798.1 605.1%
Copper 60.50 398.95 559.4%
Coffee 41.5 238.5 474.7%
Corn 1.84 8.49 361.4%
Sugar 6.11 26.20 328.8%
Soybeans 4.22 17.89 323.9%
Wheat 2.42 9.47 291.3%
Live Cattle 61.75 134.50 117.8%
Lumber 191.3 399.5 108.8%
Source: Barchart
As you can see from the table, the commodity universe enjoyed a powerful bull market as we entered a new century beginning in 2001. In fact, this was one of the most powerful commodity bull markets dating back to the Industrial Revolution. Of course, all bull markets must end. This particular bull market ended between 2011 and 2012. It was followed by a nasty bear market which began in 2012 and 2013. Please review the following table.
Commodity Markets
Price Performance (2012 – 2018)
Commodity 2012 High 2018 Low % Decrease
Silver 37.58 13.86 (63.1%)
Sugar 26.20 9.91 (62.2%)
Coffee 238.5 95.10 (60.1%)
Corn 8.49 3.42 (59.7%)
Soybeans 17.89 8.12 (54.6%)
Copper 398.95 255.20 (36.0%)
Gold 1798.1 1167.1 (35.1%)
Live Cattle 134.50 97.05 (27.8%)
Lumber 399.5 297.7 (25.5%)
Source: Barchart
From a historical perspective, the recent bear market was fairly normal in terms of percentage decline. The average decline was 42.4% (based on the basket of commodities listed in the table). If we compare the recent bear market with previous commodity bear markets dating all the way back to the First Industrial Revolution, 42.4% falls right in the middle of the range. Of course, the million dollar question is, “Did the commodity bear market end in 2018?” If so, the next commodity bull market could offer tremendous profit potential.
A common characteristic among the world’s most successful trades and investors is their ability to become fully invested in the early stages of a new bull market and bear market cycle. This is what allows them to outperform 99% of the global investment community. Are we in the early stages of a new commodity bull market? If so, how long will the bull market continue? Let’s examine the details.
The PowerShares family of exchange traded funds (managed by Invesco PLC) introduced the DB Agriculture Fund on 5 January 2007, using the ticker symbol DBA. This ETF is a pure play on food and agriculture prices. DBA does not hold any equity positions. Instead, the fund is composed entirely of food and grain futures contracts. Specifically, DBA is invested in ten different commodities. The top five commodities include wheat, soybeans, corn, live cattle and sugar. Essentially, investors are placing a speculative wager on an increase in commodity prices.
SHORT-TERM VIEW – DBA ETF
In terms of the short-term momentum, the bulls have the upper hand. The next level of resistance is 17.35. DBA has enjoyed a nice rally during the past six weeks. Most likely, this rally will continue. In order to recapture the momentum, the bears need a weekly close below 15.82.
Based on the Aroon Oscillator, DBA has an moderately overbought reading of +60. The Aroon Oscillator is programmed differently than most stochastic indicators. The oscillator fluctuates between -100 and +100. A reading of 0 would indicate a neutral position. Therefore, a reading of +60 with DBA is considered slightly overbought. The ETF is overdue for a short-term correction.
LONG-TERM VIEW – DBA ETF
Within the global investment community, there are five different asset classes. The list includes stocks, bonds, commodities, cash and alternative investments. Commodities are the most volatile asset class within the group. However, they are also the most predictable in terms of following long-term cycles. This is especially true of commodities from agriculture, energy and food. Why? Because these three sectors are heavily related to fluctuations within the global economy. Before we continue, let’s examine all ten sectors within the commodity asset class. Please review the following table.
Commodity Asset Class
Individual Sectors
Sector Commodity Commodity Commodity Commodity
Currency Euro FX Japanese Yen British Pound Swiss Franc
Energy Crude Oil Heating Oil Natural Gas Gasoline
Foods Coffee Cocoa Orange Juice Sugar
Grains Corn Oats Soybeans Wheat
Stock Index E-Mini Dow E-Mini Russell E-Mini NASDAQ E-Mini S&P
Interest Rates T-Bonds T-Notes Eurodollar
Meats Live Cattle Feeder Cattle Lean Hogs
Precious Metals Gold Silver Platinum
Industrial Metals Copper Palladium
Softs Cotton Lumber
Source: Chicago Mercantile Exchange (CME)
There are a total of 33 individual commodities within the commodity universe. Arguably, the most important sector is energy. Why? Because without energy, it’s impossible to create other goods and services. Consequently, the energy sector has the greatest influence on the global economy.
In regard to the long-term commodity cycle, are we in a bullish phase or bearish phase? In order to answer this question, let’s examine a 21-year chart of the Goldman Sachs Commodity Index (Chart #1). The most recent secular bull market began in December 1998. Many commodity experts claim the bull market ended in July 1998. Based on 259 years of commodity price action, the vast majority of secular bull markets will last 25 to 30 years. Therefore, it’s highly unlikely that the secular bull market ended in 2008. Of course, anything is possible. However, if in fact the bull market ended in 2008, it will be one of the shortest secular commodity bull markets of the past 200 years.
The most likely scenario is that 2008 marked the beginning of a cyclical bear market, which probably ended in 2016. Therefore, the secular bull market is still intact. Based on historical averages, the secular bull market (which began in 1998) should continue until the mid-2020s. In fact, it could continue until 2028.
As a side note, cyclical bull/bear markets typically last 4 to 9 years. It appears that a new cyclical commodity bull market began in 2016. As a result, commodities are currently in a very bullish phase because we are in a cyclical and secular bull market at the same time. We can expect sharply higher commodity prices for the next 5 to 8 years.
In terms of DBA, the long-term view is bearish. The next level of support is 13.94. In order to recapture the momentum, the bulls need a weekly close above 38.16. Most likely, DBA formed a multi-year low @ 15.42. From a long-term perspective, DBA has tremendous upside potential.
SHORT-TERM CHART
Please review the 6-month chart of DBA (Chart #2). In regard to the short-term trend, the bulls have the upper hand. The next level of resistance is 17.35. Based on the current chart pattern, this rally will continue. In order to recapture the bearish trend, DBA needs a weekly close below 15.82.
LONG-TERM CHART
Please review the attached 15-year chart of DBA (Chart #3). The long-term trend is bearish. The next level of support is 13.94. In order to create a bullish chart pattern, the bulls need a weekly close above 38.16. Most likely, DBA formed a multi-year low @ 15.42. From a long-term perspective, DBA has tremendous upside potential.
