Monday, June 02, 2008

DBA, DBB and DBC

Bill Luby had an interesting study of the DBA and DBB last week and, as is frequently the case, he got me thinking about another variation of that theme.
Above are the DBA, DBB and DBC on weekly bars over a 40 week time frame (click to enlarge).
You should read Bill's post first and that will save me a lot of time repeating things, and you a lot of time reading the same thing twice. What's interesting about the DBC, an ETF which Bill didn't mention, is it that its a basket of commodities diversified into oil (55%), 25% in the ags and 10% in gold.
I did a little breakdown of the DBC a while back, and really, nothing has changed from a technical standpoint since then. At the time of the study DBC was at 39 and I recommended NOT shorting it. A good call in hindsight, as the kiss off the channel was quick and sizable. It's overdue for an exhaustion bar now.
Both DBA and DBB saw pivot highs in late February, while DBC's decline was confined to one scary week mid-MARCH.
All three have experienced almost a 50% reduction in weekly volume since the March surges. From a mean reversion standpoint DBB is already there, essentially displaying a trading range pattern, while DBA has turned down and DBC has gone parabolic to the upside. Bill suggested a possible pairs trade for DBA - DBB.
Given current momentum another tactic would be long DBA and short DBC.
Finally, from THE WEEK, a great weekly (clever, huh?) magazine of truly relevant national and international news, comes a must read article on why probability is such a tricky thing.

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