Searchlight Resources Inc (SCLTF)

[sweetpepperjam]

Copper Is Signaling Global Expansion
ETF Digest
01/13/12 - 10:38 AM EST
The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
By Scott Pluschau

NEW YORK (ETF Digest) -- Copper futures are taking off. Copper is an industrial metal and has a history of use for 10,000 years. It is seen as a leading indicator on whether or not the economy is expanding because of its wide use as a conductor of heat and electricity. There has been a great debate among the fundamental analysts about "Peak copper", similar to the arguments of "Peak oil", but in that we have only so many years left before the reserves will be too costly to continue to mine.

More and more pounds of "ore" are needed deeper and deeper into the surface to get the same weight in the metal apparently. This argument points to a much higher price in the long term for various reasons. It will be hard to replace Copper as it is 100% recyclable without any loss of quality. There have been many headlines in the news recently about copper thieves stealing the metal from anything they can get their hands on.

Let's take a look at some developments in the chart. Thursday's price action brought out a surge in volume, confirming the breakout from a symmetrical pricing pattern. This is what is known as an "Igniter Move."

An igniter move is when price and volume explode from a multipoint trendline. It signals demand from big money long term investors. This decreases the odds of a false breakout. Any breakout that happens on low volume is suspect. The symmetrical triangle is one of the most reliable pricing patterns in my experience. What it shows is a struggle between bulls and bears to dominate the trend. While they fight it out this builds tension for those who are long and those who are short as we converge into a point where one side is likely to run the other over. I stay on the sideline and don't guess which way it goes. Guessing is a poor strategy for a trader.

Although I don't rely on technical indicators to make trading decisions, it's worth noting the signals from the Relative Strength Indicator and the MACD studies. In the school of technical analysis, one popular trading signal is when the MACD has a centerline crossover. The RSI made new highs as well which is a confirming signal. Combined with the study of the auction and the pricing pattern this increased probabilities for a breakout to the upside.
The profit taking target on a move out of a symmetrical triangle using "measured rule" is the distance between the converging trendlines of the triangle at the first reaction point. This would put a price target at about $4.20. This doesn't normally happen in a straight line. We will have some reactions and consolidations before we would get there, and those are the great opportunities to add to a position or to take one. Do not feel like you missed the boat, as success is heavily relied upon the reward to risk ratio. Swim with the current.

With copper making an initiative type move into vertical development, there should be plenty of great trades in the near future. Should copper reverse and break below the apex of the triangle it would be time to reconsider a bullish stance.

JJC is the symbol for the Copper exchange traded fund.

Like a rising tide lifts all boats, the heavyweight base metal champion just might lift Lead, Nickel, Zinc, Tin, and Aluminum. Dave Fry of ETFDigest has a great article on the Top Ten Base Metal ETFs.

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-- Follow this writer on Twitter/ScottPluschau

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