ETF Trends
ETF Trends

The PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC), which offers exposure to multiple commodities, is among the commodities exchange traded products that can deliver for investors if markets readjust toward the idea that the U.S. dollar is due for a near-term pullback and that global economic growth will support increased commodities demand.

DBC currently features exposure to about 15 commodities. Those include heavily traded commodities such as gold, silver and West Texas Intermediate oil futures, as well as more obscure commodities fare such as sugar, wheat and zinc.

Oil prices are rebounding after Saudi Arabia and its allies in the Organization of Petroleum Exporting Countries, along with other non-OPEC producers, pledged to cut output to end the global glut that depressed crude prices for two years. Oil was one of 2016’s best-performing commodities in what was its best annual showing since the global financial crisis.

Some oil traders believe 2017 will be fertile ground for an oil rally. While production has declined in the U.S., recently rebounding oil prices are encouraging exploration and production companies to revisit spending plans with some increasing capital expenditures.

West Texas Intermediate and Brent futures combine for 25.6% of DBC’s lineup. Gasoline is the the ETF’s largest holding at almost 13%, just ahead of West Texas crude.

Looking at DBC’s chart, “you can see that the bulls pushed the price of the fund above the resistance of a key trendline back in December. The sideways price action that has dominated the sessions since the breakout suggests that the bulls were waiting on the sidelines for Trump’s speech to help gauge the speed and likelihood of major reform,” according to Investopedia.

Gold, the fifth-largest weight in DBC, has also been showing signs of rebounding after faltering late last year.

Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.

“The proximity of the upward-sloping moving averages now suggests that the risk-to-reward ratio is becoming more lucrative by the day and most will likely set their stop-loss orders below $14.90 to protect against a significant pullback. Given the strengthening fundamentals, lucrative risk/reward and defined chart pattern discussed above, it seems as though at this point, the odds of a sharp move is in favor of the bulls,” according to Investopedia.

For more information on the commodities market, visit our commodity ETFs category.

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