Gluten Free Investing

The past 5 years investing in most commodities has been a losing proposition (unless you were short). Of course there will almost always be a handful of exceptions to every broad generality in addition to the counter-trend bounces that nimble traders could capitalize on in every commodity during any long term decline. Wheat has been no exception as you can see in its chart below as its price has fallen almost 60% since 2012.  Whether this is due to the general price deflation in commodities we have seen or people shunning wheat due to the gluten free craze we will never know. But its recent activity has grabbed my attention.

San Ramon independent fee only investment advisor certified financial retirement planner - 6-19-17 - wheat

Not only did price break above the 5 year downtrend but has formed its first higher low and has held above a newly rising 200 day moving average. A close above the blue horizontal line would not only indicate a break out from significant resistance but would also create its first higher high. Both of these signals are required for a putting in long term bottoms and the potential eventuality of an invest-able trend reversal. While these would be constructive developments there is still a short term headwind that may delay any near-term breakout as we can see in the seasonality chart below.

bay area retirement planning fee only cfp advisor, wealth manager and indpendent investment advisor - 6-19-17 -wheat seasonality

Over the past 5 years, the next two months of July and August have been some of the weakest for the price of wheat as only one of those years have had higher prices at the end of the month than at the beginning. So, is this a showstopper?

As with virtually every investment opportunity, if you are doing a complete analysis there will always be risks and arguments to be made against committing your capital. For me, price is first while everything else is a confirmation indicator only.  So, regardless of whether seasonality is a head or tailwind I will only be adding wheat to my portfolio if price first breaks above the area of strong resistance indicating it’s safe to enter the water as the bulls are in charge … at least temporarily.