Grains and Grain ETFs Ready to Rise

12/14/2010 12:01 am EST

Focus: ETFS

The grain markets were big winners from late June until the recent peak on November 9. The decline since then has been relatively shallow with a developing recovery from support levels consistent with a sustained uptrend.

There are numerous ETFs that traders can use to trade the grain markets in any account including registered retirement accounts. Using the iPath Dow Jones-AIG Grain Fund (JJG), we can use a visual to see the set-up to what appears to be a pending renewed uptrend.

The area, marked in the orange box, denotes the current consolidation. The decline from the peak is 15% (not excessive), and the price managed to find support at the 50-day moving average following a brief shakeout below that technical indicator.

The entire consolidation is about five weeks, which is short. Deeper declines that take at least two months are more significant. Ideally, this would work better for new buys, but the fact that the set-up and probable breakout is less time indicates strength in the market.

Click to Enlarge

Watch for a breakout above a price slightly above $50 per share. It should be accompanied by heavy volume of at least 200,000 shares. The breakout can be used as an indicator to execute a buy on what would be defined as day one of the renewed uptrend.

Buying before the breakout might work, but there is risk of a decline to the 50-day moving average, which is just over $47. If that happens, the consolidation is continuing and capital will be tied up as sellers and buyers battle it out before moving decisively.

By Paul Thornton of

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