The market keeps rocking and we’re seeing an underlying bid across the board. Dips continue to get bought up and sectors have been rotating as they should. But now what?
Copper is a great tell for the global growth names. When Copper is doing well we should expect emerging markets and commodity stocks to outperform. This Risk-on type of action is a positive for the market as a whole. I think we continue to be in an environment where we can buy and sell individual names and worry less about the S&P500 levels. But with that in mind, we need to make sure we’re not fighting any strong trends here. Although the market is up a ton off the October lows, we continue to see sector rotation. This is an important characteristic of bull markets. When the rotation goes towards the defensive sectors like Healthcare, Utilities, and Staples then we’ll get much more defensive. For now I think Copper is what we need to watch:
Support just under $4.00 in the Spring and Summer last year broke down in the Fall and has now turned into resistance (Green circles). Earlier this month Copper attempted to break through this key area, but failed as one would expect on the first try. All that we’re seeing here is a recognition of supply. We know that the laws of polarity are coming into play – former support turning into resistance. Now does this mean that price can’t break through? No, just that it will take more than one try in order to succeed.
This $4.00 level is key for multiple reasons. Besides the polarity mentioned above, the 61.8% Fibonacci retracement from the summer highs down to the lows in the Fall are coming into play right here. Also, the psychological resistance of a round number like 4 cannot be dismissed.
Guys this is big level for Dr. Copper. We cannot ignore it. But if the recent highs are taken out convincingly for more than a day or two, I would have to expect a retest of those $4.50 highs from last year. The bearish divergence in RSI worries me a little, but the fact that it got overbought and has been in bull mode for about 4 months or so has to be taken as a positive. We’re getting some mixed signals here, but at least we have a point of reference with the recent highs. As long as the Feb 17th lows hang in there as a higher low, then I’ll remain opimistic. If we’re trading below those levels, I would advise caution not just in Copper, but for the risk-on global growth names as a group.
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