Today’s dramatic 8.5% drop in the China Shanghai stock market drove agricultural commodities to new lows, following the plunge in general commodity prices.
One month ago, I took a position in an Ag commodity ETF, hoping to catch a pop above the 100dma. I quickly exited that trade when a rising price wasn’t matched by an increase in volume. (see Entry & Exit)
Ag commodities did break above their 100dma; however, they could not overcome the next level of resistance. The index has consequently confirmed its downward trend by hitting a new low. Thus, illustrating the harsh reality of a commodity market that seems bottomless.
Beware the impulse to “buy the dip”. Often when prices seem unrealistically low, they drop lower. (see chart)
At some point commodities will be back in favor and most likely ascend rapidly; however, that time is in the future.
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