Don't Ignore Agricultural ETFs

 | Jan 06, 2017 | 10:00 AM EST
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Stock quotes in this article:

DBA

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MOO

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de

,

zts

With so much excitement surrounding the current bull market in stocks, it's easy to overlook some of the more mundane corners of the investment world.

When it comes to commodities, oil and gold have dominated the headlines. While the hard commodities have stolen the spotlight, their softer siblings are quietly setting up for a breakout. Let's take a look at the charts of several agricultural ETFs to see where the opportunities lie.

First up is the PowerShares DB Agricultural Fund (DBA) . This ETF made an explosive move earlier this week, and in the process managed to break through some key obstructions.

DBA smashed through a bearish trendline that had capped it for six months (black dotted line) and simultaneously catapulted above its 50-day moving average (blue). To put an exclamation point on the move, Wednesday's breakout occurred on double the average volume (black arrow).

This ETF has also formed a bullish double-bottom pattern (semicircles). The pattern is small, but the momentum of the breakout should push DBA to its next area of resistance, its 200-day moving average (red).

Note how that moving average has capped the ETF on several recent occasions (red arrows). If DBA can break past that key moving average, it has plenty of room to run and could revisit last year's high of $23.

I'm also impressed with the price action of the VanEck Vectors Agribusiness ETF (MOO) . MOO is clearly in an uptrend, as evidenced by a series of higher lows (HL) and higher highs (HH). This price action is mirrored by the higher lows and higher highs in MOO's MACD (moving average convergence divergence) indicator, which tells us that MOO's uptrend is likely to continue.

In December, MOO reached a fresh 52-week high; then the ETF pulled back sharply, creating a potential buying opportunity. MOO's MACD is on the cusp of executing a bullish crossover (shaded yellow). That buy signal could occur as soon as today.

A look inside these two ETFs demonstrates their dissimilar approaches. DBA's largest position is live cattle, which comprise nearly 14% of the portfolio, followed by soybeans (12.62%) and corn (12.4%).

Meanwhile, MOO is focused on stocks. Its biggest holdings include names like Archer Daniels Midland ADM, Deere & Co. (DE) , and Zoetis (ZTS) . I'm opening small initial positions in both DBA and MOO today, and will add if warranted.

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