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Is Copper showing the future demise of stocks?


Mercury

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Copper is a traditional leading indicator for stocks, being a bell-weather for industrial activity from manufacturing to building.  However in 2011 Copper peaked after an astonishing bull run and stocks barely blinked.  We know why, central bank policy.  But that can't last and too many reporting quarters of declining growth and earnings will finally push the market to breaking.  That coupled with the fact that volumes are thin this high up...

 

There are, as always, multiple scenarios on Copper, I see 2 main ones:

  1. Wave 4 of 5 is completed and the market has already started it descent into the final bottom of the bear run;
  2. Wave 4 is not yet complete and we will get a rally up to the upper weekly chart tramline

I was in favour of scenario 2 before but now I think we are running out of time to make a further higher high.  In the past few days Copper has reached a set of tramline resistance points and rather than go into consolidation (whereby a further move up is very likely) the market bounced back sharply (see Daily chart below).  There was a small Negative Momentum Divergence on the hourly to support this sharp rebound and the market is now in the process of posting a small 1-5 down.  If it then puts in an A-B-C retrace back up and turns bearish again without posting fresh highs then the big picture turn is on.  And this will, in my view, run long and hard down to historic levels and also presage the end of the Stocks bull.  If Oil were to join in with copper in a commodities rout then that would seal it.

 

You may not trade copper, it is a hard market to get in on although it does offer great rewards, but as a leading indicator it ought not to be ignored.

 



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If anyone is trading copper, after an great move down (bagged over 1000 points) we look set for a retrace for a while before the next big move down (a wave 3 which should be even bigger).  Unless of course somehow we get a direction reversal...

 

Decent chance for a Long if your taste runs to swing trading but better bet is to wait for the retrace and seek a Short. 

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