A Pattern within a Pattern within a Pattern (Symbol: DBA ETF)

PowerShares DB Agriculture Fund ETF (DBA) has been trading in a sideways choppy consolidation range since October 2008 (15 months) trying to complete a bottom. Volatility has gotten tighter over time with DBA recently forming a relatively small Ascending Triangle consolidation pattern (5 weeks) inside a larger Symmetrical Triangle formation (10 weeks), as volume has been declining. Each of these smaller patterns is inside a much larger Symmetrical Triangle that has been developing for approximately seven months.

There have been a couple false breakouts previously from the larger Symmetrical Triangle but DBA could now be getting closer to making a run out of consolidation. 

It broke out of all three patterns yesterday with a breakaway gap and on volume higher than the 50-day average. The breakout resistance level was also right around the 23.2 per cent Fibonacci retracement level of the larger down trend started from the June 2008 high. Although it closed near the low of the day at $26.69 DBA was up 0.95 per cent. 

The close is right around support of the upper lines of both the smaller and larger Symmetrical Triangles but back inside the Ascending Triangle. If it can get back above the top of the Ascending Triangle, $26.84, and close above it, the odds increase that DBA will follow through to the upside as energy built up via all three patterns is released. 

If DBA closes above $26.84 then near term resistance is at $27.20, a swing high and the top of the smaller Symmetrical Triangle. The next resistance level to watch after that is at $28.87, the top of the large Symmetrical Triangle, followed by the 38.2 per cent Fibonacci retracement level of the larger down trend which is $29.59. After that there is potential horizontal resistance at $31.

Now let’s take a look at the measuring objectives of the triangles. 

Measuring Objectives: 

Small Symmetrical Triangle

Top Line $27.05 – Bottom Line $25.32 = $1.73 difference

Breakout at $26.68 + $1.73 = $28.41 Objective 

Ascending Triangle

Top Line $26.84 – Bottom Line $25.60 = $1.24 difference

Breakout at $26.84 + $1.24 = $28.08 Objective 

Large Symmetrical Triangle

Top Line $28.87 – Bottom Line $23.20 = $5.67 difference

Breakout at $26.68 + $5.67 = $32.35 Objective 

The targets for the smaller triangles have the highest probability of being hit in the near term along with the 38.2 per cent Fib level. However, given the long bottom consolidation of DBA the chances are pretty good that higher levels will be hit, all of which have not been addressed in this post but can be seen on the larger chart example.