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Monday June 29, 2009
Powershares Agriculture (DBA): Invest in crop circles!
In The ETF Trader, he explains, "We like the technical picture. In addition, we believe commodities are a great hedge against inflation." Here's his assessment. "I’m a pretty skeptical guy; one of the more wild claims of the past decade or so was that so-called 'alien' crop circles -- those bizarre patterns carved into wheat, corn and other fields around the globe. "Well, I say forget about the aliens, but don’t forget about the patterns taking shape in the world’s key agricultural crops. 
"The patterns being cut into price charts of crops like corn, soybeans, sugar and wheat all have given us one compelling message, and that message is it’s time to buy. "That’s why I now am recommending that you purchase the PowerShares DB Agriculture (NYSE: DBA). This is an ETF that seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid Commodity Index - Optimum Yield Agriculture Excess Return. "This index is composed of futures contracts on corn, soybeans, sugar and wheat, some of the most liquid and widely traded agricultural commodities. "There are many reasons to like DBA besides just its technical picture. First off, commodities are a great hedge against inflation. "Second, many of the countries with the biggest demand for agricultural commodities are experiencing explosive growth. "China, India and Brazil all are in hyper-growth mode, and that means demand for commodities is going to continue being very strong. "In addition to the strong demand for these big four crops, we also know that the supply of these commodities is not growing fast enough to meet demand. According to some industry estimates, food inventories are currently at multi-decade lows. "And what do you get when you have increasing demand and a decreasing supply? That’s right, higher prices. "The underlying index that this ETF tracks is now trading right at its 200-day moving average. There’s been a pullback in DBA during the past several weeks, and that pullback has now given me the go ahead to buy DBA. "In addition to your buy orders for DBA, I also want you to place a stop-loss order at 10% below your buy price. Putting in a stop loss is a must in this fund, as it tends to be more volatile than your average equity ETF. If you are not prepared to put in a stop loss with your buy order, I recommend not putting in a buy." 
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