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September 01, 2008

Precious Points: Topping the Copper Top
by Oroborean

"In Elliott wave terms, last week's rally could very well have been a 4 of C consolidation before the final lows. Both gold and silver failed to take out a key support/resistance level just above Friday's closing levels. Neither managed to have their rallies confirmed by MACD, which actually widened negatively in both cases. And, whereas gold is poised for a bearish crossover over the 50-week sma over the 5-, silver has already done it. Both gold and silver remain well below their 5-week moving averages. If this is the beginning of a new leg to the bull market, there's still lots of work to do before we have anything approaching confirmation." ~ Precious Points: One More Low to Go? August 23, 2008

Though gold closed higher for the week, the doji weekly candlestick continues to indicate a market that is decidedly undecided about its next direction. Though the start of September and traditionally positive seasonality might increase trading volume and help resolve this uncertainty, the weekly chart of gold, shown below, does not contain much encouragement for near term bulls.

About the best that can be said is that gold has put in a series of higher highs and lows since hitting a bottom three weeks ago, but resistance at the 5-week simple moving average, the bearish crossover of the 50-week ma over the 5, and the failure of MACD to confirm this move higher, all weigh heavily.

Given the modest rise over the last two weeks, it's not too surprising to find the daily chart in somewhat better condition. Seen below, gold has skittered along support at the 5-day sma, and has seen a bullish crossover in MACD. The 5- and 50-day moving averages have converged and not yet crossed, suggesting a compelling target for the current move. Unless a clearly impulsive wave pattern unfolds, one that will likely take gold to $900 and above, the entire advance from the low could easily be seen as a simple three-wave correction.

The situation in silver is similar, but even less optimistic. First support in silver will be just above Friday's low. Failing that, support above the August 26 low, shown in red on the chart below, suggests silver may be forming a triangle B wave, putting the target for its measured move in an a,b,c correction at about $15. As with gold, the count could be modified if the wave pattern has a more impulsive look at the target, but this should be confirmed by price action before assumed.

With precious metals in such a funk, attention has turned lately to base metals and what their price action may be forecasting about the global economy and the future of commodities in general. Probably the most telling of the base metals in this regard is copper, and its chart offers an interesting possibility. Seen below, copper appears to have just completed the 4th wave of an ending diagonal, suggesting new highs in the near future. This scenario fits nicely with an uptick in post-Olympics demand from China and a resilient global economy in general.

Trading below the mid-August low invalidates the ending diagonal and strongly implicates a top in copper is already in place. But continued upside in metals is supported by the weekly chart in aluminum which, after putting in a clear 5-waves up, is quickly approaching a perfect Fibonacci retracement level.

Thinking fundamentally, commodities seem to be in transition out of the first half of their bull market, where supply is woefully inadequate to meet an unquenchable demand, to a second half where new supply is finally coming into production and onto the market raising stockpiles in an environment where demand no longer seems indomitable and unquestionable. This is not to say new highs are unattainable, as a clear path to new highs is clear and present in the charts of copper and aluminum. But, even if the ED in copper remains valid and a rally to new highs materializes, such a move would complete a 5-wave move from 1999 and signal a major top. And as history suggests, tops in copper tend to correspond with a slowing global economy and therefore tops in other major markets.

But, on the whole, we shouldn't be surprised to see gold near $900 and silver near $15 in the short term, though this won't necessarily mean a bottom is in place. Instead, these target areas are likely to be the next major inflection points that could presage new lows or a rally towards new highs.

In either case, now, for limited time only, is your chance to join this community of traders. Beginning Saturday August 30 until September 8, or until available spaces are filled, TTC will be accepting new members.

Because we take the quality of our service very seriously, we strictly limit membership and work to develop members' trading skills. Having noticed an improvement in our current membership, most of which are professional, institutional traders, we will accept a limited number of new retail members for one week only. TTC does not issue trade signals because we teach you how to trade. We don't spoon feed you because we teach you how to take care of yourself. So, whether you're a novice trader who wants to get better, or a more experienced pro that's wants to share what they've learned and go to an even higher level in multiple markets and timeframes, TTC is the place for you.

Finally, I should say that if you join TTC, be ready to stay. It usually takes a month or so for traders to comfortably incorporate our techniques into their trading, but once they do, members don't often leave. In fact, it was this dedication and sense of community that inspired us to work with the Northwest Territorial Mint to produce a custom commemorative "Unbiased Trader" precious metal medallion - which will be available for purchase soon. Professionally designed and proof struck in association with the Northwest Territorial Mint, these gorgeous medallions will be available in 5 oz .999 fine silver or 1 oz pure gold varieties. Last year's supply sold out quickly, so join now to reserve your chance to purchase your own "Unbiased Trader" TTC medallion.

Joe Nicholson (oroborean)
www.tradingthecharts.com

This update is provided as general information and is not an investment recommendation. TTC accepts no liability whatsoever for any losses resulting from action taken based on the contents of its charts, commentaries, or price data. Securities and commodities markets involve inherent risk and not all positions are suitable for each individual. Check with your licensed financial advisor or broker prior to taking any action.

Copyright © 2006-2008 Joe Nicholson

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