Why I'm Bullish on Commodities

By Chris Vermeulen

Dow Jones Commodity Index Fund – This index tracks the entire commodity market as a whole. Over the past two years we have seen commodities drop in value substantially. The good news is that we could be seeing prices rise going forward from here.

2009 has been a fantastic year for trading commodities with the market bottoming and starting to move higher. This commodity index clearly shows a Cup & Handle pattern and is looking ready to breakout in the coming weeks. The C & H pattern is the best chart formation we could get. Breakouts from these patterns generally provide a rally which can last months at a time.

Let's take a look at what kind of opportunity looks to be just around the corner.

Dow Jones Commodity Index Chart – Weekly

Commodities appear to have bottomed and are getting squeezed into the apex of the bullish wedge. This index could easily rally to the 180 level which is about a 35-40% gain.

Click to enlarge:

DJP iPath Commodity Index Fund – Weekly

After reviewing several different commodity index funds I like the characteristics for DJP the most. There is enough volume traded which makes for a smooth trading fund on an intraday basis when looking at the 10 minute chart. Several other funds were choppy and thinly traded.

This is Exciting – Everyone knows how most commodity funds vary from the underlying commodity price, well this fund trades identical to the index. What does this mean? It means we can trade the DJP commodity index fund for short term and long term positions because there isn’t any price decay over time.

Click to enlarge:

Performance Chart of Commodity Index & Fund

This chart goes back almost 2 years. As you can see the % change for the index and the fund are virtually identical. We do not need to worry about contango with this fund.

Click to enlarge:

Major Commodities Breaking Out or Bottoming

Gold, Crude Oil and Natural Gas are highly traded commodities and will play a large role in the direction of the commodity index.

Gold is breaking out to a new high - Bullish

Crude Oil is consolidating in a bullish wedge - Bullish

Natural Gas is trying to bottom and should move higher into the winter - Bullish

Dow Jones Commodity Index Trading Conclusion:

Money has been moving into the commodity sector since March of this year. As a technical trader this opportunity jumps out at me. I wanted to share it with fellow traders because this could be once of the easiest trades of the year if the index breaks out in the coming weeks.

Original article

Comments

[Steve in Gr...:]

Thanks, Mr. Vermeulen, for the useful article. Couldn't see the charts on the SA version, but could on the original article, so thanks for providing thank link.

In addition to the technical aspects, we are likely to have a war in the Middle East in the next few months which will certainly drive oil higher.

Oct 12 04:59 PM

[bassmaster17:]

The only bubble is the beligerant spending in Washington...I think the Ringling Brothers Barnum and Bailey Circus would achieve what they have, but atleast it would be entertaining...what am I talking about...the Congressional clowns are better...pass that healthcare bill...lets get it over with. Tax the wealthy...they only create jobs and expand the tax base. I don't like buying gold at these high prices, but if a circus controls the fate of the nation's currency, I see no better alternative. Ag seems like a good play too.

Oct 13 01:39 PM

[CLH:]

The rise in the commodities is entirely due to the drop in the dollar. The dollar is close to the bottom so its time to short commodities. Everyone is bullish on gold and commodities---time to sell.

Oct 14 07:02 AM

[SkiHiBabe:]

Tell me, who is really running up the market, theres trillions of dollars,on the side lines (so they say) and hedge funds have not invested much yet, so who is putting in the money to get dow 10,000? And if hedge funds dont start buying and building up their funds, they will be fired (so they say). So this looks like everyone needs to get in ,and lets make money. Let me know what you think. SkiHiBabe

Oct 15 11:41 AM

[Gold Bug:]

Commodities Guru Jim Rogers still bullish on Commodities and China he explains why in this interview with Chinese TV CCTVhttp://jimrogers1....

Oct 22 01:07 PM