Oil and copper are two key industrial inputs. Additionally, the growing presence of investors in commodity markets mean that they are a leading indicator of global sentiment around industrial production. At the moment they’re both saying the same thing – buy shares.
This is a controversial call, given the Euro pressures markets are under. Last week’s piece (Australia 200- Oversold) started a twitter war. You can read it here: http://blog.cmcmarkets.com.au/2012/05/23/australia-200-oversold/
Before you get out your flame-thrower, have a look at the charts below. I’m a firm believer in evidence based trading, and there is evidence here. On a number of occasions, this blog has highlighted the importance of oil and copper as market indicators, most recently in Copper Tells the Tale http://blog.cmcmarkets.com.au/2012/05/16/copper-tells-the-tale/
Copper – Hourly
Copper dropped through the highlighted support at US $3.44 a pound, but has now bounced back through. Additionally, there appears to be a triangle break-out – two good reasons from a charting perspective to look for further gains in copper.
Oil – Hourly
Interstingly, oil is showing a similar profile. If West Texas Intermediate (WTI) crude oil rises above US $91 it, too, will break out of a triangle.
I was stopped out of my long trade in the Australia 200 on Friday night when it fell below 4,022. I’m generally reluctant to re-enter a trade after a stop out (taking losses can put me off balance, and lead to poor decision making). Nonetheless, these two key markets have me considering the following trade:
BUY Australia 200 at current market, with a stop loss order below the recent low at 4,013.