Commodities

Commodities Consolidate, Where’s The Next Move In GSG? (NYSEARCA:GSG)

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iShares S&P GSCI Commodity-Indexed Trust (NYSEARCA:GSG) is one of the most popular ways to play the current boom in commodities. Invesco DB Commodity Index Tracking Fund (DBC) is the other common choice for investors seeking exposure to the commodities asset class. According to BlackRock (BLK), GSG tracks the S&P GSCI Total Return Index.

After a stellar run off the 2020 lows, some 204% for GSG and a still-impressive 167% for DBC, should folks continue to have significant commodity exposure or wait for a pullback?

I look at each ETF and stock on its own while considering intermarket relationships. I focus primarily on technicals and leave the in-depth accounting and valuation work to analysts who have dozens of hours to pour over financial statements and 10-Ks.

So, what do the GSG charts show right now? Let’s start off with a long-term perspective. GSG broke out above $19 earlier this year. The next key resistance spot might come about at the 2014 breakdown level near $34. Notice on the long-term chart since 2007 that there was a remarkable seven-year period of consolidation before the bearish breakdown.

When In Doubt, Zoom Out: GSG Upside Resistance, Downside Support

GSG long-term chart with levels to watch

StockCharts.com

Homing In

Near-term, there is another continuation/consolidation pattern in the works in this technician’s eye. Look for a breakout above $25 for another thrust higher, perhaps taking GSG back to that $34 level. A bearish breakdown below this current bullish triangle pattern likely leads to a test of the 38.2% Fibonacci retracement price near $19.

GSG Four Year Weekly Chart with Fibonacci Retracement

Near-term GSG chart with Fibonacci

StockCharts.com

GSG: What’s In It?

Those are the levels to watch. But it’s also important to know what you own and why you own it. According to iShares, GSG is primarily an energy commodity fund. But there’s also some agriculture and industrial metals exposure. Still, you want to know where you stand with respect to oil prices before going long or short GSG.

GSG Exposure Breakdown

GSG exposure

iShares

The 2022 Year-to-Date ETF Performance Heat Map

So far in 2022, GSG has been a huge winner. Investors have flocked to the perceived safety of commodities given the bevy of geopolitical risks and huge inflation rates around the world. GSG is up more than 40% while DBC is up about 35%.

YTD ETF heat map

Finviz

Eyeing the Calendar

A secondary tool technical analysis should keep in the back pocket is seasonality. Equity Clock is my go-to. We are nearing a peak in the annual price pattern of commodities for the 20-year period ending Dec 31, 2021. Still, there is some near-term bullishness to be expected now through the 4th of July. Sellers often regain control starting in mid-October each year, according to Equity Clock’s data.

GSG seasonality

Equity Clock

GSG vs DBC: Head-to-Head

So how are GSG and DBC the same and different? According to ETFdb, the two ETFs are pretty close in AUM and between their expense ratios. DBC is larger, but both funds have more than $2 billion in assets, so liquidity is typically decent. Investors could go with either one and gain good exposure to commodities.

GSG vs DBC

ETFdb

The Bottom Line

I think commodities still have some room to the upside for the next few weeks and even months, but there is some resistance that will come into play for this commodity ETF. With my bullish near-term, and somewhat bearish long-term stance, investors should pay close attention to the charts and the levels I outlined for the next big moves.

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