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The Ugliest Chart in the Market

By Jeff Clark
Tuesday, July 30, 2013

It has been a rough year so far for copper...
 
The metal is down 20% in 2013. And it looks like it's going to get worse...
 
Below, you'll find a chart of copper's price action over the last 12 months...
 
Price of Copper Over Last 12 Months
 
As you can see, copper bottomed in late June. And in the following weeks, the metal put together a series of higher highs and higher lows. This bullish pattern gave long-suffering copper bulls a glimmer of hope. But that glimmer got snuffed out last week when the copper price broke down again, and the chart violated its rising support line.
 
Copper now looks set to retest its June low around $3.05 per pound, or worse.
 
The last time we looked at copper, in March, it traded around $3.40 per pound. I argued that the metal should decline to $2.80 per pound. Here's an updated look at the chart I showed you back then...
 
Copper, Price per Pound, 2011-Present
 
As you can see, the recent bounce off the $3.05 support level looks pathetic. The metal couldn't even rally back up and challenge its previous support level (now resistance) near $3.40. With copper displaying such poor price action, it's unlikely to survive another test of support at $3.05. That brings the $2.80 price target into play.
 
This isn't the worst news for copper bulls. Let's look at the weekly chart of copper...
 
Copper Price per Pound, 2008-Present
 
This could be the ugliest chart in the market right now. You can see how important the $2.80 price level is. If copper falls below that price, there isn't much support until the $2.20 price level.
 
Stock-market investors should pay attention to the price action in copper. Stocks and copper are both viewed as leading economic indicators. They rally in advance of an upswing in the U.S. economy, and they fall in advance of a contraction.
 
But today, these indicators are telling two different stories. Stocks are rallying right now, and copper is falling. This divergence rarely lasts long. Either copper needs to rally to catch up with the gains in the S&P 500, or stocks need to decline to come back in line with the action in copper.
 
Given how bad these charts look, I wouldn't count on copper playing "catch up" any time soon.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

While the charts look bad for copper, all the signs are pointing to a "violent rally" in another metal. The gold sector recently did something it hasn't done since last year, and Jeff says this could "prove to be the start of a new intermediate-term uptrend." Get all the details here.
 
An invaluable part of any investor's toolkit is knowing how to read charts to spot trends, find tops and bottoms, and identify breakouts. These common-sense technical analysis tools can make you a more successful short-term trader and improve your long-term investing returns. Learn how to start using these tools today.

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Market Watch
Symbol Price
Change
52-Wk
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Oil (USO) 37.13 -0.2% +10.3%
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Gold Stocks (^HUI) 253.14 -1.0% -38.5%
10-Year Yield 2.59 +1.2% +66.0%

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Symbol Price
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52-Wk
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S. Africa (EZA) 59.76 -0.2% -7.6%
Lat.America (ILF) 36.45 -1.7% -12.2%

Sector ETFs
Symbol Price
Change
52-Wk
Alt. Energy (PBW) 5.86 +0.2% +47.2%
Media (PBS) 22.20 -0.6% +47.2%
Defense (PPA) 26.49 -0.2% +41.7%
Construction (PKB) 19.36 -1.3% +40.7%
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Biotech (PBE) 32.53 -0.9% +36.1%
Retail (PMR) 32.61 -0.3% +35.7%
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Software (PSJ) 31.52 -0.1% +20.0%
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Nanotech (PXN) 7.00 -0.8% +16.4%
Semis (PSI) 16.66 -0.4% +15.0%
Basic Mat (IYM) 71.28 +0.5% +14.2%
Utilities (XLU) 39.42 +0.2% +7.8%
Real Estate (IYR) 67.60 -0.8% +7.5%

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