Trinity of technical analysis: Support, Resistance & Volume

Two days ago I initiated a position in an Ag commodity EFT, today I exited that position because it didn’t meet the performance standards I established.

I’ve been watching commodities for a long time, watching them fall lower and lower.  We all know that eventually that trend will reverse and provide asymmetrical profits in excess of 25%.  This week it looked like agricultural commodities might be breaking out.  I jumped in…but only after conducting my normal due diligence.

The analysis I use to select a stock includes: Fundamental (balance sheet), Supporting Trends (societal & nature), and Technical (price volume ratios).  This article will focus on Technical Analysis.

The trinity of technical analysis is: Support, Resistance & Volume.

The support for Ag Commodities is weak (see first chart).  It’s breached the lows of the 2008 Recession and perhaps hasn’t yet found a bottom.  THIS IS A CONCERN but not a deal breaker.  Investment involves risk.

Conditions seem to be improving with the current price above the 5, 10 & 50 day moving averages.  (see Moving Averages chart).  This is a very good sign and worth taking on risk because the trade volume picked up on the day the price crossed the 50 dma.  That’s why I initiated a position in the ETF on Tuesday.

BUT…I was looking for significant follow-on price and volume.  Neither materialized over these past two days.  Although price has risen slightly, volume has been lower than on Tuesday.  (see Volume Matters chart)

Momentum is vitally important with this ETF because it has weak support and very strong resistance at the 100 dma.  (see Strong Resistance chart)  For the past 12 months it has not been able to break through resistance at the 100 dma.  Currently the price is only 0.30% away from the resistance line but I suspect that without strong follow-through volume it will lack the momentum to soar higher.  For that reason I liquidated my position today.

Eventually commodities will break out of their malaise and offer significant profits.  I’m just not willing to take further risk on this feeble break out.

Ag finding bottom 150625

Ag moving averages 150625

Ag volume matters 150625

Ag strong resistance 150625

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