Diagnosing Dr. Copper’s Virus

• Posted by Greg Harmon
• on September 28th, 2011

Copper ($HG_F) has been hiding what it thinks about the economy for most of 2011. But that may have all changed over the last two weeks. Dr. Copper definitely has a virus, the question is how bad is it. The weekly chart below shows a perspective on Copper using the Andrew’s Pitchfork tool. This is the big picture and it is telling a bearish story now. After breaking below the Median Line of the bullish green Pitchfork it is now being drawn lower towards the Lower Median Line. There are

factors that slow its fall, like the 200 week Simple Moving Average (SMA) just below at 3.22 and the Relative Strength Index (RSI) touching 30, the edge of being oversold, but this is a bearish view. And if it gets below 3.00 this is even more likely to happen quickly.

Looking at the weekly chart using Fibonacci retracement levels shows a similar story and gives further weight to a stall at the current levels. The blue Fibonacci’s retrace the move from the 2001 lows to the 2006 high at 4.08, and the purple ones the move from the late 2008 low to the 2011 high at 4.66. Notice the tight range between 3.26 and 3.37 where two levels are close together. Some congestion here would be expected. It is also easy to see the consolidation that took place

around the 2.97 level in 2010 which could provide support and then 2.75 and 2.57 below that. But this is only a 38.2% retracement of the latest move to date. Often a retracement will fall back to the 50% or 61.8% level, or 2.97 and 2.57, previously mentioned. Adding the negative bias from the Moving Average Convergence Divergence (MACD) indicator to the downward pointing RSI discussed above suggest more downside to come.

Finally looking at the daily chart below shows the carnage close up. after falling under the 3.90 level the move lower accelerated with a brief stall at the 50 % Fibonacci at 3.69 and is now near trying to hold onto the 3.46 Fibonacci level after finding support at 3.30. On the daily timeframe the RSI is rising from an oversold condition and the MACD looks to be peaking and starting to improve.

But that 3.70 level overhead is looming as resistance, presuming it can get over the 3.50 area. Watching how Copper reacts on the daily chart to these resistance levels will be the first indicator as to whether it it has Mononucleosis or Ebola. I will continue to wear my Bio-hazard Suit until it is determined.

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