copper – Page 2 – Andrew Thrasher

New Short-Term High Could Take Us Either Way

Posted on July 19, 2012 by Andrew Thrasher

I’ve spent most of the evening thinking about this tape. With today’s close we are back to the early July high, which means it’s time to open the hood and look at the engine to determine if what’s driving this market is sustainable or not.

What is so frustrating is there doesn’t seem to be a clear signal from what I’m seeing. I could go either way. On one hand we have the Aussie dollar, which mirrored the move we saw in the S&P 500.

We also have the S&P breaking above a falling trendline (blue) and it still has room to run until it hits the rising trendline (orange) around 1390-1400.

We also have the fewest number of bulls based on AAII Sentiment data since August ’10, which has historically been a fairly good bullish contrarian indicator.

While on the other hand neither copper (JJC), China (FXI), the financials (XLF), or Technology (XLK) participating in hitting their early July highs. These four are typically leading indicators of price movement in the major indices. When we don’t see cooperation in any of them, a warning sign goes up.

Also, if you look at the S&P 500 chart posted above, in the bottom panel we see the On Balance Volume indicator which I’ve talked about numerous times. OBV simply adds the number of shares traded on positive days and subtracts the number of shares traded on negative days to give an idea of whether buyers or sellers are controlling the tape. During the recent rally we have not seen buyers step up in force while the S&P got back over 1370.

Finally, small caps (IWM) were also not present on the list of those hitting their short-term high. Typically, I like to see large caps be accompanied by the small caps during critical market junctures as a sign of traders adding beta to their portfolios. We saw a similar divergence where small caps were nowhere to be found when the S&P hit a new high back in April, with IWM putting in a lower high.

So now you can understand my frustration. We have cooperation from some and a lack there of from others. Although it will take more market action to play out before we may know if this rally can continue or if the intermediate downtrend is still intact, it seems there may be a slight bias to the upside for the time being.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

Copper Update

Posted on June 9, 2012 by Andrew Thrasher

Copper, or Dr. Copper as some refer to it as since it has a tendency to ‘predict’ moves in equity markets, is at an interesting place right now. Below I am looking at a weekly chart of the commodity, with a 200-week moving average plotted alongside price. As you can see by the orange circles, since 2010 the 200-week MA has done a fairly good job of back stopping the price of copper. This is where this past week of trading found some (so far) potential support.

When we look at the popular RSI momentum indicator, we typically get a break of 30, or at least get pretty close to 30 prior to seeing a bottom made in copper. We aren’t quite as low as we have been on this momentum indicator as past bottoms, but as Mark Twain once said, “history doesn’t always repeat itself but it sure does rhyme.”

So we have a potential bullish situation in copper based on a moving average support area and a possible oversold RSI indicator. Lets see where traders positioned themselves in the futures market. The chart below shows us the COT data going back to 2007. As you can see, commercial traders are extremely net long copper futures, while small traders are very bearish towards the metal – just the combo bulls like to see.

One of the important things to remember when looking at copper is its strong ties to China. If China’s economy is in fact slowing, which we saw additional signs of this morning with their weaker industrial output and CPI data, then copper is likely to feel the impact.

Risk Off Continues

Posted on May 17, 2012 by Andrew Thrasher

I keep hoping for things to change and we get some kind of consolidation at some point. But we must respect the market and what it’s telling us. We got a peek at the FOMC minutes yesterday with no material changes except a hint of a possible increase in transparency and Jon Hilsenrath of the WSJ pointed out the change in verbiage from ‘a couple’ to ‘several’ Fed members indicated additional easing may be necessary. Only time will tell once Operation Twist ends next month what Bernanke will pull out of his bag of tricks.

Looking at the charts, yesterday saw some weakness in the high yield space, which had been holding up fairly well during this most recent decline. both $JNK and $HYG became the latest victims of this sell off.

Copper (as you can see below) has continued to slide with commodities losing their vogue status. Copper tends to be a good bellwether of the markets risk appetite and can provide clues to how frisky traders want to be.

Disclaimer: Everything in this post is meant for educational and entertainment purposes only. Do not construe anything written in this post or blog as a recommendation, advice, or an offer to buy or sell any securities. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.