08 Sep 2010
Copper - a market indicator?

Hello and welcome to CantosCharts. My name is Eoghan Leahy and I'm a Trader and Technical Analyst with Fat Prophets.

Yesterday we dealt with the indecision in the market, the bull and bear case and which direction we think the market will take over the coming weeks and months. So now we're going to have a quick look at copper and see if this perhaps could lead us in what direction the market might take.

If we have a look back here in early 2009 we had a divergence between copper and the market. We had a lower low here in the market, but meanwhile, copper was making a higher high which ended up being a good buy signal which led us into a long extended rally.

Now again we have a similar situation here this year where we have a lower low on the index but we now have a higher high on copper. This divergence has now led to a higher low, so is the market going to follow and breakout of that trading range we discussed yesterday and push on higher over the coming weeks and months?

If we move on now, this is an interesting development. Very long-term. This is an Ichimoku cloud which is very good for trend direction. We can see that we have a breakout of the Ichimoku cloud on the monthly timeframe which is suggesting perhaps a very lengthy sustained move for copper which would support a very bullish run on equities.

If we look now again at the daily candlestick and the cloud chart, this move is also confirmed. Lagging line through on both charts also which is what we look for.

Here are some indicators we like to use that confirm the trend move and we can see here that after consolidating for a long time we now have a bullish MACD crossover supported also by a positive parabolic stop and return move here which also ties in with the trend move. So we're seeing what could really be a strong trend move higher on copper if we can start to break some of the recent resistance and highs.

So what we have here looks like a flag consolidation pattern which usually is kind of halfway measuring point which will give us an upside target of 400 which would take us through the recent high of 368 and bring us towards the psychologically significant round number resistance at 400.

Now, the real question will be when we get to this level can we push on and test the high of 426, 427 and really drive on higher in the coming weeks and months.

Again, having a look here, this maybe gives us a little hint that we will push through some of these levels, is that we can see here an overboard reading on RSI which corresponded with the recent high and pullback.

But what's nice to see, again, you can use trend lines and similar techniques on oscillators such as RSI as you can with price. So we had a pullback, but a pullback right to this uptrend support, a drive higher. We can see here again the little almost confirmation of the flag pattern. We're still pointed higher and we're yet to register overboard readings, so we'd really expect to see a break through this 368 level and a drive on towards the 400 resistance.

Thank you very much. My name is Eoghan Leahy. This has been Cantos Charts and tomorrow we will be having a look at bonds and how the 10-year treasury might also tip us off how equities might break in the coming weeks. Thank you.