With surging inflation, many consumers have been feeling the pinch of rising food prices lately. But here’s an excellent way to profit from the situation through buying an ETF that follows the price of wheat futures (WEAT).
Many stock market sectors have been trending lower for months, making 2022 a challenging year for stock investors.
However, rising consumer inflation has caused many commodity-based stocks and ETFs to buck the trend and cruise steadily higher.
Teucrium Wheat Fund, a hot ETF that tracks the price of wheat futures, is one such leader in the commodity sector.
WEAT has already gained +6% since its Apr. 8 buy trigger, and is now poised for further gains in the coming weeks.
WEAT: The Pullback Buy Setup
WEAT broke out from a three-month long base and exploded higher in early March, confirmed by a massive volume surge as well:
WEAT then pulled back from the highs and entered into a five-week consolidation pattern.
Generally speaking, a strong breakout should hold support of the 20-day exponential moving average on a pullback–a clear signal that the trend remains strong.
Two weeks ago, WEAT briefly dipped below the 20-day EMA, but quickly recovered back above that level a few days later.
After the price of WEAT snapped back above the 20-day EMA, we began looking for a potential pullback buy entry.
WEAT: The Buy Entry
The daily chart below shows the price action that led to an ideal, low-risk buy setup in WEAT:
At point “A,” the price of WEAT broke out above the downtrend line from the pullback high.
The price also reclaimed support of the 8 and 20-day exponential moving averages.
That bullish gap above resistance of the downtrend line and moving averages triggered a buy alert and put the setup on our radar for an ideal buy entry point.
Thereafter, the price action tightened up and formed inside days over the next two sessions.
Narrow-ranged days near key moving averages often create ideal buy points, especially when there are multiple days in a row.
As such, we saw a potential, low-risk buy point in WEAT on a rally above the Apr. 7 high (point “B”).
The buy trigger came the next day, as the price of $WEAT rallied above the Apr. 7 high on increasing volume.
On April 11, our buy entry was confirmed by a second day of buying on another nice pick-up in volume.
If you are not a member and missed the original buy signal, then a quick pullback to the 8-day moving average could also provide a relatively low-risk buy entry point in WEAT.
WEAT: The Exit Strategy
With WEAT now breaking out above the high of its five-week consolidation pattern, traders may consider selling 50% position size into strength on a test of the early March high (around $12.75).
Based on our buy trigger above the Apr. 7 high, that would be a +22% gain–not bad for a commodity-based swing trade.
If the price action remains bullish, we would then hold the remaining half position to maximize gains in anticipation of a breakout to new highs.
Of course, it’s crucial to trail a protective stop higher along the way–simply to secure gains in case of a sharp pullback.
Rising food prices may be challenging right now, but selectively trading commodity stocks and ETFs that are also rising is an excellent way to ease the burden–and maybe even come out on top!