Put the Microscope on Copper

Copper is often touted as an economic indicator and a stock market barometer. The story goes that as a working class metal if economies are growing they are building and therefore need copper for their buildings and plants. You can see there is a relationship in the weekly view of the ratio chart of the iPath Dow Jones-UBS Copper Subindex Total Return ETN, $JJC, to the S&P 500 SPDRs, $SPY, below.

The candlesticks represent the ratio while the blue shaded area is the $SPY itself. They move together. There is a lot going on in this chart but simply put there are 4 important factors to focus in on. First, the Fibonacci’s favor a move lower to a ratio of at least 0.32. Below that a full retracement to 0.21 is much more likely. Second, the Relative Strength Index (RSI) has been trending lower making lower highs as it moves in bearish territory. This also favors a move lower in the ratio. Next, the ratio is below all of the Simple Moving Averages (SMA) and they are all falling. Another bearish sign. Fourth, and maybe most important, the $SPY itself is lagging, but following the ratio. This is important as it suggests that moves in the ratio are lead by $JJC and then $SPY follows. So it signals that $JJC is actually a leading indicator for the $SPY. With that in mind look at the weekly chart for $JJC below. In a long symmetrical triangle, it is approaching the bottom rail of that triangle, currently at 41.20. A move below that rail carries a target to 16.60, below the 2009 low. Think about what that could mean for the $SPY. The $JJC has a falling and bearish RSI and Moving Average Convergence Divergence (MACD) indicator that is negative, both supporting more downside, and the Bollinger bands are opening lower as well. Add this perspective to your examination equipment as you continue to search the market for clues as to the next direction.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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