How to Read the Signs of Change—Trend Change, That is… (Part 5)

03/20/2009 12:01 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

Let's see what happened to copper in late 2008 and early 2009.

The base line support you see at the beginning of the chart below is the bottom of the chimney formation from the prior chart—I've just zoomed in so you can see it better. Look carefully! Price tried to break below this base line several times, and this base line proved to be stubborn support. But price finally did break below this base line at $350. Price climbed back to test it once, but was unable to break and hold back above it. Once it was clear the base line was going to act as resistance instead of support, a near vertical selloff in the price of copper began.

chart

The change in behavior was simple to recognize. It didn't take computer generated lagging indicators, nor did it take expensive proprietary “trend detecting” methods. Once you learn to read market structure and begin looking for changes in behavior, price will begin talking to you.

Copper bottomed out in late 2008 at about $125, which is where the entire ride higher started in 2004. It is now making a gentle series of higher highs and higher lows. Have we seen a change of behavior? I think it's too early to decide whether this current rally is a countertrend rally (a pullback in an overall major down trend) or if it is a clear change in trend and a new uptrend has begun. Time will tell—and if we watch the charts, price will give us a clear signal!

More on Monday in Part 6 …

Timothy Morge

timmorge@gmail.com
www.medianline.com
www.marketgeometry.com

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