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An Early Warning Sign for a Pullback in Stock Prices

By Jeff Clark
Tuesday, February 26, 2013

Copper dropped 5% last week.
The metal has long been viewed as a leading indicator of stock prices. Investors should pay attention, because when copper catches a cold, the stock market gets the flu. And last week, copper sneezed...
Take a look...
Copper Breaks Down Through Its Rising Short-Term Support Line
Copper broke down through its short-term rising support line (the red line). It also crashed through intermediate-term support (the bottom blue line). That's one heck of an ugly move.
But even more significant is that copper has now broken down from its consolidating-triangle pattern (both blue lines), which suggests that the metal is headed even lower – perhaps all the way back down to last summer's low.
We turned bullish on copper last June. Since then – and until last week – copper was up 14%. That helped support the rally in the broad stock market. But last week's decline wiped out almost half those gains. Copper is now trading back down to where it was in mid-December... and it looks likely to move even lower.
The most disappointing part of this development is that up until last week, copper was trading in a very bullish formation. The chart showed a pattern of higher highs and higher lows. It looked poised to break to the upside of the consolidating-triangle pattern. This bullish look to copper was one of the reasons that – despite all the technical caution signs flashing in the market – I wasn't willing to turn aggressively bearish on stocks.
That reason doesn't exist anymore.
The sharp drop in copper last May coincided with an 8% pullback in the S&P 500. Stocks fell 8% in October as copper got hit hard, too.
I suspect last week's sharp decline in copper is an early warning sign for a similar pullback in stock prices... And it's why I'm willing to take a few short trades on any stock market strength this week.
Best regards and good trading,
Jeff Clark

Further Reading:

Earlier this month, two of Jeff's most trusted indicators – his own mother and the MACD momentum indicator – flashed warning signs. "It is time to be careful," he writes. "Tighten up your stop losses. Hold off on plowing tons of new money into the market."
Stocks may hit a rough patch soon. But Jeff is keeping his eye on one dirt-cheap sector that hasn't soared along with the rest of the market... and that he says could rally soon. Get the details here: We Are on the Cusp of a Major Rally in This Sector.

In The Daily Crux
Market Notes
Video-game makers Activision Blizzard and Electronic Arts hit new 52-week highs.
Credit-card companies American Express, Visa, MasterCard, and Discover are up 15%-plus in the last 12 months.
Cigarette giant Altria hits a new all-time high... shares are up 130% over the past four years.
Gold miners aren't participating in the bull market... the Market Vectors Gold Miners Fund is down 17% in 2013.
Market Watch
Symbol Price
S&P 500 1487.85 -1.8% +8.9%
Oil (USO) 33.21 -1.2% -21.0%
Gold (GLD) 154.34 +0.9% -10.4%
Silver (SLV) 28.07 +0.9% -18.3%
U.S. Dollar 81.78 +0.4% +4.4%
Euro 1.31 -0.6% -2.6%
Volatility (^VIX) 18.99 +34.0% +9.7%
Gold Stocks (^HUI) 364.50 +1.4% -32.7%
10-Year Yield 1.90 -3.6% -4.0%

World ETFs
Symbol Price
USA (SPY) 149.00 -1.9% +11.2%
Singapore (EWS) 13.58 -1.8% +10.6%
Israel (ISL) 14.04 +0.1% +8.9%
S. Korea (EWY) 60.51 -2.4% +2.7%
Taiwan (EWT) 13.32 -1.9% +1.8%
India (IFN) 21.28 -0.7% +1.4%
Japan (EWJ) 9.99 -1.4% +1.2%
Canada (EWC) 27.96 -1.2% -1.2%
China (FXI) 38.04 -1.3% -2.7%
S. Africa (EZA) 65.21 -0.6% -3.0%
Lat.America (ILF) 42.93 -1.7% -9.0%
Russia (TRF) 14.93 -1.8% -13.0%

Sector ETFs
Symbol Price
Construction (PKB) 18.23 -3.2% +32.5%
Media (PBS) 17.80 -1.6% +21.4%
Health Care (IYH) 89.75 -1.1% +21.2%
Consumer Svcs (IYC) 91.06 -1.4% +19.7%
Financials (IYF) 64.30 -2.4% +19.2%
Insurance (PIC) 19.00 -2.1% +18.2%
Real Estate (IYR) 67.00 -1.7% +14.5%
Transportation (IYT) 103.39 -2.2% +14.1%
Water (PHO) 21.77 -2.6% +14.0%
Industrials (IYJ) 77.76 -2.0% +11.6%
Telecom (IYZ) 24.04 -1.4% +9.5%
Defense (PPA) 21.39 -1.5% +8.8%
Retail (PMR) 25.76 -1.6% +8.7%
Utilities (XLU) 36.85 -0.9% +8.4%
Software (PSJ) 28.75 +0.0% +8.3%
Biotech (PBE) 24.34 -1.8% +8.3%
Big Tech (QQQQ) 66.31 -1.2% +5.0%
Nanotech (PXN) 6.35 +0.8% -3.1%
Semis (PSI) 14.98 -0.7% -4.2%
Basic Mat (IYM) 67.58 -2.4% -4.9%
Alt. Energy (PBW) 4.43 -3.3% -22.5%

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