It has been a while since we wrote about agricultural markets, and, specifically, potash stocks.
In January, we identified 3 reasons why agricultural commodities could be starting a new bull market in 2017. Probably the most important investing insight from that article was this quote:
“It is a typical phenomenon that bull markets are born when there is no investment interest, and, accordingly, when there is complete silence in the media about that specific market.”
What happened since then is interesting to say the least. Agricultural commodities, represented by the GKX index (Wheat, Corn, Sugar, Soybean, Coffee, Cocoa, Cotton), engaged in two breakouts, and both got invalidated soon after. Moreover, there was this start of a breakdown which got invalidated as well.
Right now, the GKX index trades at 296 points. It has traded between 280 and 320 points throughout the first 7 months of this year.
Agricultural commodities: long term bottom, nerve-wracking to investors
Agricultural commodities are doing something that is nerve-wracking to most investors: trading within a range, and moving from support to resistance and back. What typically happens is that investors give up. Once there is no investment interest, and the majority of investors pay any attention anymore, smart investors step in and push them sharply higher in a very short period of time. Once that happens, the biggest gains are in the pockets of a small group of investors … which is when media and a larger group of investors start paying attention and taking long positions.
That is why patience, combined with strong analytical skills, are the most important skillset for an investor.
Let’s take a closer look at the GKX index. The long term chart shows the trading range we just mentioned. Support sits at 280 points, there is big resistance at 340 points. The bottom formation is ongoing for 3 years now, which is quite long. It suggests that sufficient bullish energy has been accumulating, so once this breaks out it will go higher very fast in a short period of time.
