Agricultural Commodity ETF (DBA): Where's the Deflation in This?

The author highlights the bullish phase of the Agricultural ETF (DBA), noting its clearance of the January 6-month calendar range, while acknowledging it is not currently outperforming the SPY. Key indicators to watch include DBA outperforming SPY on leadership, Real Motion gaining momentum, DBA holding above 26.80, and closing the week at or above 27.40, with global conflicts and potential weather disruptions adding to its seasonal potential.

Analysis

The analysis focuses on the Invesco DB Agriculture Fund (DBA), which is exhibiting a bullish phase on its daily chart, with its 50-day moving average (DMA) above the 200-DMA and price trading above both moving averages. Notably, DBA has recently cleared its January 6-month calendar range. However, this technical strength is contrasted by its underperformance relative to the SPDR S&P 500 ETF Trust (SPY) since late April, a bearish divergence in momentum, and unstacked moving averages. On a weekly timeframe, DBA has been consolidating since an April decline but has maintained a bullish phase since January 2024, leading the author to question prevailing bearish calls despite waning momentum and leadership. The author suggests that declining CPI and PPI may not translate to lower agricultural commodity prices. Key developments to watch for a confirmed bullish turn include DBA outperforming SPY on leadership, Real Motion gaining momentum, DBA's price holding its Friday low of $26.80, and achieving a weekly close at or above $27.40. The outlook is also influenced by seasonal weather potential and global conflicts. This follows previous commentary where the Retail Sector (XRT) held key levels, Semiconductors (SMH) maintained support above $260, and the Biotech Sector (IBB) is approaching a key resistance at $131.

Key Decisions for Investors

• Monitor the Invesco DB Agriculture Fund (DBA) for a confluence of confirming signals, specifically outperformance against the SPY, strengthening Real Motion momentum, a sustained hold above the $26.80 support level, and a weekly close at or above $27.40, before considering new or increased long positions.
• Factor in the potential impact of seasonal weather patterns and geopolitical developments on agricultural commodity prices, as these could serve as catalysts for DBA, despite current mixed technical indicators.
• Given DBA's current underperformance relative to the broader market and the noted bearish divergence in momentum, maintain a cautious stance, recognizing that the bullish case is contingent upon the materialization of several specific technical triggers.