foxex: Chocolate Visions

Chart Advisor | Focus on the Price

Friday, November 22, 2019

1. Quiet market action sees agricultural commodities on the rise

2. Farm equipment manufacturers remain in uptrend

3. Chocolate maker on sale?

Market Moves

The markets for stocks, bonds and currencies have traded remarkably less volatile than usual. Even commodities have had mixed results with gold and silver reducing volatility while Oil has increased slightly. One of the markets easily overlooked is that of agricultural commodities. Though this segment of the market has not performed well in 2019, in recent months prices have, for the most part, been on the rise.

The chart below shows a comparison of Invesco's Deutchebank-Index-based agriculture fund (DBA) with other ETFs that track agricultural commodities including: Cocoa (NIB), Coffee (JO), Wheat (WEAT), Soybeans (SOYB), Sugar (SGG), and Corn (CORN). Since the end of summer, and likely in anticipation of a favorable harvest season and new crop year, these commodities have been on the rise. The one exception among these is CORN, which may be more sensitive to the rising value of the U.S. Dollar and the U.S. China trade negotiations. The most notable increase in these commodity prices has come in Cocoa and Coffee.

The importance of looking through such charts is that it can help a trader or investor recognize where new opportunities might appear next. Stocks that might benefit from these trends might now be positioned to return well from current levels.

Farm Equipment Manufacturers Remain in Uptrend

Investopedia contributor Tim Smith wrote a worthwhile piece detailing the current positions of three farming stocks. Considering the current environment, this topic is rather timely. The chart below is a quick snapshot of these stocks and demonstrates how these have been trending higher through the summer. That their current status shows them slightly pulled back from their highs is consistent with the market at large. However, the important point is that all three stocks, John Deere (DE), Lindsay Corporation (LNN), and CNH Industrial (CNHI), have maintained the appearance of their upward trend despite the pullback.

Tech Stocks Racing Toward Best Gains in Decade Despite Red Flags

Pullback in Farming Equipment Stocks Offers Trading Opportunity

Chocolate Maker on Sale?

If the commodity rising fastest is cocoa, it might make sense to go looking for which company might have its share prices influenced by an increased demand for cocoa. The biggest player in the industry is undoubtedly Hershey Company (HSY). The chart below shows that the company had performed very well through the first half of the year, but has had a significant pullback from its highs since then. Perhaps it is not surprising that the fall in HSY share prices coincides with a rise in cocoa prices, but what is surprising is what an excellent trading setup this appears to be.

While HSY shares may drift lower in the near future, the breakout of this channel might portend a resumption of the trend higher. Shrewd chart watchers will want to keep an eye on the price of cocoa to see if its price corresponds with a change in HSY share prices. Such a coordinated move could reveal a superb trading or investing opportunity before the end of the year.

The Bottom Line

Quiet trading in most markets today left the major indexes little changed from yesterday's close. Agricultural commodities appear to be on the rise, and farm equipment manufacturers appear to be rising coincidentally. Cocoa prices are moving up strongly and this may have an effect on Hershey's shares. Despite this the stock looks like it has an opportunistic setup.