Commodities as a leading indicator

[Condor]

i'm still looking for my second entry, its just hasn't pulled back!  Gotta be happy with what's happened Ive never been in this position since i started in March when ive got a trade running thats as good as this. Whats your thoughts , where's  when you need him - on a beach?!  C

[Condor]

good points    thanks. C

[Mercury]

Hi , as i may have mentioned before I think Silver is a very dangerous market to trade.  It is very volatile with low volume relative to Gold and therefore prone to wild swings and poor liquidity.  Much better to trade Gold or maybe High Grade Copper.

 

Regarding the latter, here is my updated view:

 

The big picture is quite interesting on this market; as you can clearly see on the Monthly chart the long term trading range for this commodity was between 5,000 and 15,000 until China demand cause the commodity bull surge to 2011 but China has dried up now and will remain so for the medium term at least I think.  Therefore my reading is that we have not seen the bottom of commodities in general and Copper in particular could have a long way to go yet, at least to 15,000 is my guess.

 

Currently we are in a retrace rally I believe and I'm looking topping out near my Daily tramline (green) close to the Fib 62% (Red) or maybe the underside of the larger scale Fib 23% (black).  Of course there is a chance we haven't hit the Purple 4 yet because it didn't make the weekly down trend tramline (see weekly chart) and Pos Mom Div on the Daily is strong.  However if we do get a turn in the vicinity of my predicted Wave 2 (blue) on the Daily chart then this could confirm another Bear run.  A strong break through the Daily tramline line (green) would indicate the Wave 4 (Purple) is not yet in and a rally to the upper tramline (purple on weekly chart) is then indicated.

 

A look at the 4 hourly suggests an A-B-C may be forming but too soon to tell.  This is one to watch for those key areas and if we call it right there are 1000s of points available.  Additionally the eventual near term direction may give us some clues to stocks as Copper is a leading industrial activity indicator.

 



[Mercury]

I haven't made a post on Copper for a while and that is chiefly because it has been in a sideways consolidation phase (I did post separately on Copper around about the time it hit a retest of a resistance tramline back in July) and I got a Short off that July 20th move.  Since then Copper has been a bit undecided but now I see a trend line down being obeyed well it gives me confidence in my original analysis that this market should be in for another fall.

 

High Grade Copper is a barometer market for me in terms of both long term stocks and resource heavy FX like AUD.  In addition to this potential Bearish move on Copper, Iron Ore, which has been on a surprising rally over the past few months, looks like it has topped out and is returning south.  Now the stock markets did not follow commodities in 2011, we all know why, but can they resist another commodities plunge?  The only outlier is Oil, which I think will carry on up for a while yet but will then also plunge along with other commodities.  If that happens then watch out Stocks!  Copper is always the first to go...

 

Elsewhere I see short term GBP & EUR rallies but AUD seems to be weakening.  If and when USD does get it Bull on then things may change quite fast.  A continued and sustained Bear move in Copper will apply more pressure to this scenario, one to watch if not to trade (hard to trade with IG because the spread is so large, sigh!)

 



[Mercury]

My final piece for this weekend is High Grade Copper, for me a leading indicator for stocks as it is a real commercial commodity with no precious metal connotations.  It is a hard one to trade because of the large spread ( I would trade it more if the entry risk was a bit eased  but if you catch a good turn then it offers 1000s of points, as I managed to get from the previous high).  right now I see a large scale Triangle in play [note trading these is risky, bests to wait for a breakout] and Commitment of trader data shows that hedge funds and their ilk have gone bearish (they are usually wrong about copper turns seeing a trend at the end rather than the beginning...).  I suspect Copper will rally, possible back up to the upper Triangle line towards the end of September in line with Oil and stocks before beginning its final run down to the real bottom.

 



[Mercury]

Just as a quick follow up, HG Copper seems to be in the process of breaking out from a small time frame head and shoulders formation, with support from a junction of an up-sloping weekly Triangle line (blue) and daily chart tramline (green) plus a down-sloping Daily tramline (red).  Stochastic and RSI also in support and price action support is taking in the region of a FIb 62% between the 18 Jan low and the 18 Mar high (not drawn).

 

With Oil also showing some strength this would align with stocks strength and USD weakness scenarios.  Gold remains a bit of a mystery just now and could go either way.

 



[Mercury]

In trying to decide whether we have seen a market top on US large Caps or not I have looked at both USD (DX basket) and commodities. Gold/Silver seems to be in sync with stocks just now, a bit like bonds and all pretty strange so not much help their, except to say that Gold/Silver seem to be staging a bit of a rally.

Copper has just broken through a resistance tramline on the daily chart having rallied out of the congestion zone I had previously identified. It was very hard to get into this one as the market broke a false H&S neckline before staging the rally. If the breakout of the tramline is confirmed, and the strength and EWT count supports this just now then that is a strong bullish signal for the economy and therefore stocks. Perhaps also a signal that the markets do not believe in a USD rate rise in September despite recent skittishness.

Oil could well be about to also stage a rally. I did have a thought that a second test of the flag line might be on the cards and that is still a possible scenario but if it does rally from here then that would also be a strong bullish indicator overall.

 

As for USD, the DX seems to bee showing a bit of weakness just now on the hourly chart.  Ideally I'd like to see another small leg up to conclude the rally before a drop back but this could easily be a turning point given the small double top.