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Wouldn’t You Like To Be a Copper Too

Copper Break Out of Triangle

I’ve been watching for signs that the current move in the stock market could be confirmed by other sources – what we don’t want to see is a head fake that gets us ready for a positive year (like 20111) only to turn around and the gains turn into losses.

Here is a link to an article on “Dr. Copper” from 2010 at the MSN website you might be interested in reading: What \'Dr. Copper\' says about the economy

Basically, copper is a key “tell” for the state of the global economy as it presages moves up and down in economic changes. Because copper is such a key input to so many industrial and construction projects, it is one of the first things put on order as projects get underway. An increase in copper demand pushes prices higher pretty quickly due to its relative scarcity – unlike coal in Kentucky, the copper coming out of the ground isn’t of the same quality or quantity any longer- and shows up before statistics on economic growth are calculated and released. For this reason, when we see the price of copper rising, it is a confirming indicator that economic growth numbers should be strong in coming releases.

Greg Harmon is to thank for noting that Copper has found some strength. I’ve annotated a graph above to show you what is happening.

First, you will see that I’ve drawn a blue triangle pattern on the price graph. You want to not two important things here: (1) we’ve broken above the downtrend resistance line, and (2) we’ve also closed above the 50-day moving average. Both of these a re significant and support the strong showing we’ve seen in stock prices recently.

Second, for this breakout above the downtrend line to be considered a valid break of the pattern, you need to have a confirmation from volume. You can see I’ve drawn a green V on the volume bars to show you that: (1) as price was consolidating within the pattern, demand for the metal was waning; but (2) demand for copper started to increase steadily until it pushed the price above the downtrend line.

Third, I always like to watch the institutional cash flow, and you can see that it has also turned positive.

The price action in Copper is giving me some comfort that the move we are seeing in the stock market with the “risk on” assets leading the way should have some legs to it – always barring any disaster coming out of Europe.

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