JJC - Graindrops keep falling on my head

The markets are always right in the long run but sometimes in the short term they get it wrong and overreact.  When that occurs it can provide a wonderful investment opportunity for those who are patient and have a long term investment horizon.  I have been watching grain prices since they peaked the middle of 2012 and have been water-falling downward ever since. The further I see them fall the more I become interested.

In the longer term weekly chart of the ETF that tracks the grains index (JJG) below you can see it has not been this oversold since this index has been in existence. Notice how the last time in 2008 when it was this far outside of their Keltner channels (green band) it popped up almost 50%. Just because it is oversold though does not mean it can’t get more oversold and it’s time to say the “bottom is in”.  Notice how at the end of June it broke down through the first line of support and is sitting at another critical level right now.  Also noteworthy is the volume spike in July which may be the indication of capitulatory selling.  These are all very reassuring signs a bottom may be close I am not completely convinced as 1) we don’t have positive momentum divergence or did we go back and touch the previous all-time lows.  While these are not required, they make me less confident committing money to this investment at this point as picking bottoms can be akin to catching a falling knife. 

When all the signs are not there, drilling down to a shorter time period can be very helpful.

Below is the daily chart of JJG looking back over the past 12 months and the first thing that should jump out at you is the waterfall decline, an almost 30% drop since May. On the positive side, the positive divergence I was looking for on the weekly chart shows up here. This is why it is mandatory to look at shorter time period charts as it has to show up first in the shorter time frame before it can in the longer period.  Two final constructive arguments that were not apparent on the weekly chart are the bullish falling wedge and the price-volume profile (gold bars on left side). 

A break above the blue dashed downtrend line, a break out of the falling wedge (solid blue lines) AND a closing price above 39.65 should give investors a compelling reason to look at JJG as a possible addition to their portfolio.