The Hidden Opportunity in Soft Commodities

On Monday, we talked about transitory inflation and decided that, if general demand for goods was to continue with such strength, one of the best places to keep an eye on for investing opportunities could be in soft commodities. Not only must people eat, but, as travel picks up its pace along with restaurants moving back to full capacity, we can expect demand to follow.

However, this poses a problem if we come into any types of food shortages caused by supply chain disruptions or drought. Since food commodities work on 2-to-3-year cycles, it takes much more time to increase supply. This could create sudden price spikes if supplies run thin. It should also be noted that the Fed does not watch food as an indicator for inflation and therefore does not have a complete picture of the economic outlook.

With that said, the Feds’ stance continues to look at inflation from a temporary standpoint and urges investors not to worry. As technical traders, we are always watching price action, and this blind spot from the Fed could be a great opportunity to enter trades in some of the most popular food commodity ETFs.

Above is a chart of Corn (CORN), Soybeans (SOYB), Sugar (CANE) and Wheat (WEAT). Besides WEAT, all are currently holding above their 50-day moving average, while WEAT is near support from its highs dating back to late February. Since March 2020, each has made large strives in price and are holding their long-term upward trend. If they continue to hold or bounce off these key price levels created from support or the 50-DMA, this could offer a low-risk entry in these safety plays.

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Watch Mish cover transitory inflation on RT’s Boom Bust!

ETF Summary

  • S&P 500 (SPY): 422.82 new support.
  • Russell 2000 (IWM): Holding over the 10-DMA at 229.92.
  • Dow (DIA): support 341.84 the 50-DMA.
  • Nasdaq (QQQ): 342.80 pivotal area.
  • KRE (Regional Banks): 68.91 the 50-DMA.
  • SMH (Semiconductors): 245.19 support. 258.59 resistance.
  • IYT (Transportation): 264.70 pivotal area. 268.85 resistance.
  • IBB (Biotechnology): 159.37 support to hold.
  • XRT (Retail) Main support the 50-DMA, 93.05.

Forrest Crist-Ruiz

Assistant Director of Trading Research and Education