Last week I wrote an article about Copper, which you can check out at Barchart.com. I was interested to see if Copper could break out above some overhead price and volume resistance. It did last Wednesday with a big upside move triggering a bullish ABCD pattern with targets at 4.6925, 4.798, and 4.888. This pattern fails below 4.3135. Now I would like to follow-up on that article because Copper has since sold off the last two days into possible support. First, let’s talk a bit more about the bullish set-up. The ABCD pattern is bullish because its retracement is 50% or less. It also has positive momentum because the skewing is 7 bars down, 4 bars up. Normally, it’s a good idea to look for pullback entries in these cases. My favorite support zones are based on volume profile, Fib clusters, 34 EMA waves, Fib symmetry, and support/resistance lines. For Copper, we have a volume profile zone (blue box on daily chart), a Fib cluster (green box on daily chart), Fib symmetry (4.416), and an upwards sloping trend line. This area can provide a low risk/high reward entry. Stops should be placed below 4.3135. The one thing I don’t like about this set-up on the daily chart is the OBV indicator. It does not show increasing volume with this latest upwards move. But I still believe this pattern can hold and hit target 1.
XLF has had a great run since bottoming out in March of 2020. It has rallied over 112% since that time. Now there’s a large support zone approaching on the daily chart between 39.20 and 37.91 and on the weekly chart between 38.21 and 35.90. These two zones overlap to create a third zone between 38.21 and 37.91. All three present good opportunities to get long this ETF. What’s in these zones? All contain volume profile clusters, change of polarity (old resistance becoming new support), 34 EMA wave, monthly pivots, and Fib symmetry. Now for the trade.
Aggressive entries would be at the top of the zone on the daily chart. Moderate entries would be in the overlapped zones on the daily and weekly charts. Conservative entries would be in the middle of the zone on the weekly chart.
Stay tuned for more details.
Have you seen this latest article at CNBC about Cotton prices? It’s an interesting read. Now that we know some of the fundamental concerns, let us look at the charts. Usually, price action likes to stick relatively close to its 34 EMA. Until it runs too far away from it and goes parabolic. That’s what happened in late 2010 into early 2011. Also notice how violent prices fell back down once the run-up ran its course. Lesson: be careful chasing these types of moves.
Now that we have reviewed previous history, let’s move on to the now. The weekly chart shows an ABCD pattern with shallow retracement, which signals a strong trend. However, the left-handed skewing (4 weeks to 27 weeks) that triggered it showed a lack of upside momentum. But that all changed in late September with this recent surge higher. The two big questions now become: how high can prices go? and is it too late to be a buyer? Let’s tackle the first question. The weekly ABCD pattern suggests a minimum upside target of 124.37 to 125.50, which is its 100% projection and 261% extension. Above that is a weekly consolidation zone between 142.29 and 168.49 that occurred on the run down from its 2011 peak. This zone also contains the weekly ABCD’s 361% and 461% extensions.
Now that we have some upside targets available let us move on to the second question. Are we too late to enter? My favorite tools to use for pullback entries are volume profile clusters, the 34 EMA wave, Fib symmetry retracements, and change of polarity areas (old resistance becomes new support). The volume profile clusters show zones around 105.90 to 103.30, and 99.90 to 97.40. The 34 EMA wave currently sits around 100.06 to 97.16, but will change as price action moves. Fib symmetry retracements occur at 108.72, 106.59, and 98.00. Finally, change of polarity comes in from 96.71 to 95.60. Putting all of these areas together, I like the 100.06 to 95.60 zone for a potential buy. However, it’s likely that with a sudden upwards burst like we’ve seen that we won’t get a pullback of this nature. Therefore, the other zone to watch closely will be between 106.59 and 103.33.
Two last things worth mentioning are COT positions and seasonality. First, large traders are currently long at 192 week extremes and commercials are currently short at 238 week extremes. Be mindful as this can become an overcrowded trade quickly. Second, Cotton tends to see late October into late November weakness (possibly giving us our buy entry) before a surge higher that can last into late January to mid March.
Just remember, trading moves like this isn’t for the feint of heart. This market’s ATR has doubled over the past couple weeks. Be prepared for continued volatility ahead.
Here’s a list of the 27 ETF’s I follow on a weekly basis (as taught by Raghee Horner @ Simpler Trading). The ETF is listed at the top in bold followed below by the top 15 weighted holdings in each one. If green, then it’s bullish. This means the 8 EMA, 13 EMA, 21 EMA, and 34 EMA are positively stacked (i.e. 8 over 13 over 21 over 34). If red, then it’s bearish. This means the 8 EMA, 13 EMA, 21 EMA, and 34 EMA are negatively stacked (i.e. 8 under 13 under 21 under 34). If it’s yellow, then it’s neutral. The EMAs are not stacked either positively or negatively. Finally, the ones that are it italics are trading inside the 34 EMA wave. If you are a long only trader, then it’s best to look for pullback buys when green (look for ones in italics). Avoid the neutral and bearish stocks. If you are a two way trader, then you can also look for pullback sells when red (look for ones in italics). The trend is you friend!
This upcoming week’s observations are listed below (weekly change in brackets):
- 2 ETF is bullish [+1], 9 are bearish [-3], and 16 are neutral [-4]
- The most bullish sectors are XOP (16), XLE (13)
- The most bearish sectors are XHB (10), XLU (9), ARKK (9). ITB (8), XLP (8), XLRE (8)
- The market has moved more bearish this week with red stocks rising from 21.76% to 25.46%
- Weekly observations: the top 15 weighted stocks in XOP are green (bullish); this sector remains on fire! XLE closing in fast; lots of indexes, sectors, and stocks are rallying into areas of resistance
- Weekly Question: will areas of resistance hold and push these rallies back towards lows? or are we on our ways to retest recent highs?
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Last week I wrote an article for Barchart.com about a possible short-term support zone. However, now there is another interesting trade set-up developing. There is a heavy resistance zone between 161’14 and 163’02. I will be looking to short inside this zone with the potential downside targets being the recent low at 158’22 and the top of my potential support zone at 157’08. This resistance zone has a good amount of supporting factors, which are:
- Change of polarity (old support becomes new resistance)
- 200 DMA
- Monthly R1 pivot point
- 34 EMA wave
- 100 DMA
- 6 Fib symmetrical retracements
- Resistance cluster of Fib extensions (60m)
This entire zone is potential resistance, but I will be focusing closely on the 161’20-162’17 zone. This area has the greatest concentration of supporting factors. The pattern fails above 164’10. You could look to short the 30-year bond futures (ZB) or make some bearish option plays in TLT for a more cost-effective trade. Either way, make sure you limit your risk and look to scale out at the downside targets I mentioned.