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Feb 06

Dr. Copper Will See You Now – $JJC

It’s time for our regular checkup with Dr. Copper, so-called because of his record as a leading indicator of economic health. He’s been down in the dumps for a while now but is showing signs of recovery.

Here’s the weekly chart of the iPath Dow Jones UBS Copper ETF ($JJC):

AlphaCaptureIt’s dominated by this huge symmetrical triangle formation. Typically triangles are considered consolidation or continuation patterns, ie, the trend that preceded it eventually resumes, but in ‘Technical Analysis’ by Kirkpatrick and Dahlquist (p.322), after backtesting they put the odds at 50/50 that the breakout will occur in either direction. Price has climbed back above its 10wk and 40wk averages and appears to breaking out to the upside.

Let’s take a closer look to gain some more insight. Here’s the last six months on a daily chart, look at the move since November, we’re above the 20, 50, 200-day averages, we’ve got 3 higher lows and higher highs, and we’ve got accumulation, with volume coming in on the up days. An uptrend in volume emerging from a lengthy consolidation pattern. What’s not to like? I think a long position here with a closing stop at $45 (a break of nearby support which invalidates the short-term trend), would be an attractive risk-reward trade.

AlphaCapture

Links:

Technical Analysis – Kirkpatrick and Dahlquist (Amazon)

Dr. Copper (Investopedia)

 

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