From the desk of Tom Bruni @BruniCharting
Yesterday we posted a mystery chart and asked you all to let us know what you would do. Buy, sell, or do nothing?
The responses seemed pretty unanimous, suggesting selling at current levels…and one of you even guessed what it was! Maybe we’re making these too easy.
Anyway, we agree with that bearish bias, but were posting to see what other viewpoints might be out there. I guess we got our answer.
Let’s get into the real chart and why we feel it’s relevant.
The chart we originally shared was a an inverted daily line chart of Copper.
The corrected chart (using Candlesticks) shows Copper breaking out of a multi-month base to 8-month highs as momentum gets overbought. This eliminates an already weak short thesis and defines our risk on the long side to 2.86. As long as prices are above that level, the higher probability outcome is a retest of the 2018 highs near 3.31.
Click on chart to enlarge view.
This chart is important for obvious reasons. One, it’s a great trade opportunity with well-defined risk and a reward/risk skewed in our favor. More importantly it confirms the strength we’ve seen in Emerging Markets and related US Sectors and Sub-Sectors like Materials and Miners, as well as US Dollar Weakness.
What’s also interesting is the divergence between Interest Rates and Copper. With Copper breaking out to new 8-month highs, we wouldn’t expect to see the US 10-Year sitting near 52-week lows.
How much of that is because of rates around the world falling? It’s tough to say, but we’d typically expect these to move higher together as that signals the Bond Market is pricing in higher growth/inflation expectations.
We dove into these topics and a whole lot more on Tuesday’s Members-Only Conference Call.
Thanks for reading and let us know if you have any questions!