The livestock commodities have been under heavy selling pressure over the past few months, pushing related exchange traded notes into potentially oversold territory. As investors shift out of pricier areas of the market, like equities, these cheaper areas could pick up momentum.
The iPath Dow Jones-UBS Livestock Subindex Total Return ETN (NYSEArca: COW) has declined 11.2% year-to-date and decreased 15.2% over the past three months.
Once U.S. equities start to pullback and volatility rises, money could shift out of the previously outperforming equities market and into more underperforming areas, like the commodities space, writes Chris Vermeulen, CEO and founder of AlgoTrades Systems, for TheStreet.
Vermeulen argues that livestock commodities could be one area ready for a bear market rally. He points to bullish indicators, including a bottoming volatility pattern, testing a short-term trendline, rising relative strength and the oversold price.
For instance, following the continuous drop off over the past few months, COW’s relative strength index revealed that the ETN was recently trading in oversold territory around the start of February, but it has since gained momentum.
The ETN is also currently testing its 20-day simple moving average. COW is beginning to consolidate and trade within range after the multi-month fall.
COW includes a 63.4% tilt toward live cattle and 36.7% in lean hogs.