Commodities are a hot topic lately. Let’s take a look at the exchange traded fund symbol JJG, the iPath DJ-AIG Grains, on a weekly chart. For most of 2009 and into 2010, JJG formed a triangle pattern with three points of contact on each support and resistance trend line which I have drawn on the chart. When JJG had a breakdown of the triangle it was no doubt a bearish signal, but failed signals are also the strongest. In the classic “bear trap”, the short sellers believe the market well decline, and as the market reverses the short sellers are trapped and have to buy back at rising prices helping to fuel a rally. The only thing wrong with being wrong on any trade is staying wrong. The grains soon rallied across the triangle with enough momentum to breakout to the upside on confirming volume. Quickly exiting your trade when there was no follow through price action to the downside keeps you in the game for opportunities like this very next breakout. From an auction market perspective JJG entered a phase of vertical development on that breakout of the triangle, where the market was clearly seeking new value at higher levels. In other words demand is overwhelming supply, and until the supply meets the demand, it pays to sit back and do nothing but look to add to your position. These two trades are the epitome of cutting your losses short and letting your winners ride...READ MORE
ETF in Focus: JJG
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.