Clive Maund
gold, silver, & oil shares


Copper and oil - next upleg imminent?...

originally published April 30th, 2009

Both copper and oil appear to be shaping up for fresh gains, the chief difference between the two being that copper is looking more like it will advance again towards its recent highs and then back off and mark out a trading range for a while before possibly breaking above its March highs, whereas oil looks set to advance to new highs for the year soon. Note, however, that there is a time window within which these gains must occur, before downside risk increases again in response to the next brewing storm of deleveraging.

On the 6-month chart for copper we can see that it behaved as predicted in the copper breakout alert posted on the site February 8th, staging a strong and highly profitable rally up to its 200-day moving average where we were a shade late in calling a temporary top, after which it has reacted back in a satisfactory manner towards its 50-day moving average, that has served to unwind the critically overbought condition that developed early in April, which was a factor leading us to take profits. It bounced strongly yesterday off the support shown, leaving behind a bullish pair of candlesticks known as a bullish engulfing pattern, which suggests that it has hit bottom. Given the comparatively sharp reaction of the past couple of weeks, it seems probable that it will stay within a trading range bounded by the nearby support and resistance shown before it is ready to advance further towards the strong resistance level shown, which it must do before the the next wave of deleveraging sets in. Thus, even though it looks like it will remain rangebound short-term, that will still permit a short/term advance to the 220-225 area.

Oil has behaved as predicted in the last Oil Market update, breaking out to enter a recovery uptrend, although the gains thus far have been somewhat less than expected. We ditched our oil stocks late in March when both oil and the oil stocks had become rather overbought, after which a reaction set in. The reaction in crude from its late March highs now looks like a consolidation pattern that has involved a perfectly normal reaction back to its 50-day moving average that has served to unwind the earlier overbought condition that had existed as made clear by both the RSI and MACD indicators. Thus, oil is now well positioned to begin another intermediate uptrend that should take it towards the target zone shown where there will exist, at the time it gets there, a confluence of the next resistance shown and the falling 200-day moving average, which are likely to cap the advance. This new uptrend should begin soon, or even immediately, and again it should be noted that oil will need to attain this target before the next wave of deleveraging sets in. The deleveraging will be due to the impact of the massive derivatives overhang, and the only possibility of this being averted will be if a way is found to somehow fence off and quarantine these derivatives, or even simply write them all off, although this will obviously upset more than a few people. Note that although oil looks set to rally, oil stocks are regarded as a more risky play in coming weeks due to the growing danger of a broad market reversal.