Optimism on Wall Street appears to be slowly fading away as major equity indexes haven’t been able to keep up with last week’s bullish momentum. Since the broad-based rally last Friday, price action has been lackluster on the equity front as resurfacing “fiscal cliff” woes have once again opened up the doors for profit-taking. Economic data releases remain mixed, with October durable goods orders data coming in flat while consumer confidence is showing signs of minimal improvement. Amid the looming uncertainties, precious metals have offered little to no refuge, prompting savvy traders to look to other corners of the commodity market for opportunities [for more economic news and analysis subscribe to our free newsletter].
Since bouncing off its 200-day moving average (yellow line) earlier this month, the iShares S&P Global Timer & Forestry Index Fund (WOOD) has once again neared a major resistance level, one that it has not been able to summit thus far in 2012.
WOOD has been climbing higher along a steadily rising support line since bottoming out just above $34 a share in early June of this year. Since rising above its 200-day moving average in late August, however, WOOD appears to be pumping the breaks on its bullish momentum. When considering the chart above, it’s quite clear that WOOD has major resistance around the $42 level (red line); this ETF has tried, and failed, to summit this historical resistance level on several occasions. The most recent attempt was in early November when it retreated back to its 200-day moving average [see Most Popular Commodity ETFs].
Although WOOD has been consistently trekking higher since June, jumping in long at current levels is quite speculative given the high probability that selling pressures will sweep in as soon as WOOD attempts to settle above $42 a share.
If WOOD’s historical price pattern holds, speculative traders may have a short opportunity on their hands; in terms of downside, this ETF has support at $40 a share followed by the $38 level. On the other hand, WOOD could break out higher if it manages to defy its historic resistance level; in terms of upside, this ETF must first settle above $42 a share before it can tackle the next resistance level, which comes in at around $45 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Disclosure: No positions at time of writing.