It’s time to buy agricultural commodities again.
In February, I said commodity bulls were going to make a lot of money this year.
The PowerShares Agricultural Commodity Fund (DBA) – an exchange-traded fund made up of 17 different agricultural commodities – had been declining for three years…
And it was showing signs that it was finally ready to move higher.[ad#Google Adsense 336×280-IA]Readers who took my advice to buy made solid gains. DBA rallied 20% over the next three months.
But in May, I warned you to protect your profits.
I said if DBA couldn’t hold above the $28 level, it would likely drop to the next support line at about $26.
And that’s exactly what happened.
DBA has given back about 60% of its gains from earlier this year.
Now, DBA looks set to bounce higher…
Take a look at this updated chart of DBA…
DBA closed just under $26 per share on Friday – down about 60% from earlier this year. The stock is still up around 8% in 2014 – which is on par with the around 7.5% gain in the S&P 500.
But unlike the stock market – which looks poised for a short-term pullback – DBA is resting on support around $26 and looks ready for at least a short-term bounce.
This is a low-risk area in which to buy agricultural commodities. If the commodity rally resumes, DBA should be able to climb back above resistance at $28 per share… and possibly reach its 2012 high at just above $30.50 per share by the end of the year.
On the other hand, if support fails and DBA falls to around $25.50, traders can exit the position for a small loss.
Using Friday’s closing price, that’s around $4.50 worth of potential profit and just $0.50 of downside risk. That’s a nine-to-one reward-to-risk ratio… which makes agricultural commodities one of the best-looking trade setups in the market right now.
Best regards and good trading,
Source: Growth Stock Wire