My much awaited, anxiously anticipated bounce off right shoulder support of the S&P 500’s (SPX) inverted Head & Shoulders has transpired brilliantly. Most inter-asset correlations concur, but I wanted to focus on precious metals Copper and Silver here today.
First, the 30-minute intraday S&P 500 ETF (SPY) frames the inverted H&S bottom I’ve been squawking about so much since the beginning of this month. Recall, this chart pattern is analogous to 2010 & 2011:
Given this week’s material lift off of 1300, I expect that support to hold now. Of course, the Eurozone summit at week-end will determine the trajectory of a risk-on/risk-off rally henceforth, but I sense that the bar has been set low for constructive policy that might emanate from this meeting.
Dr. Copper has historically been an economic proxy. Copper (HG/) has bottomed at my $3.20-25 trendline support target. I’m buying the Copper ETF (JJC), because physical looks to reverse higher, up to ~$3.60 trendline resistance of a big symmetrical triangle. As always, I see some risks to this new position. For example, HG might pierce the support upon which it rests. This support happens to be the neckline of a long-term Head & Shoulders I’ve been tracking since April. However, longer-term technical indicators (weekly fractal in particular) aid my confidence in a bullish setup, so trendline resistance is my more immediate target:
Silver (SI/) is the precious metal that provides a good gauge of risk-appetite. Truth be told, SI has formed a bearish descending triangle, upon which $26.50 support it now rests. Its technical indicators (specifically stochastics) have all bottomed on all fractals, which votes for its support holding and risk rallying, despite the bearish classical pattern:
I’ve been buying the Russell 3000 All-Market ETF (VTI), bringing my position to a meaningful, 15% long allocation. I also started accumulating some shares of Agilent Technologies (A) and ConocoPhillips (COP). I’ve highlighted COP’s fundamentals and technicals before. The technical setup here has finally prompted me to buy. I’m still holding ~12% cash, having deployed 13% this week in equity buying. I’ll continue accumulating index exposure, especially on pullbacks.
Beyond that, I’m refraining from more high-beta exposure just yet. The indecision in Silver’s chart give me enough reason to temper my bullishness with Beta neutrality. Anecdotally, my reservation is that I still think investors are caught in the “Panic” stage on the Cycle of Psychology. “Capitulation” has not yet occurred. Of that I’m certain:
In a few months, I’m sure someone will look-back upon these past weeks and ascribe the Capitulation tag to the June 1st or 21st trading days. Those days printed big losses… but no garden-variety Capitulation. NYSE Volume (VOLN) has been non-existent, and today’s 683mm share total is a cumulative outlier compared to averages.¹ That’s how bottoms are formed. That’s Despondency, the absolute bottom of the Cycle of Psychology.
My sense is that we’ve forgone Capitulation. Not all paradigms repeat thenselves, time-after-time, in neat sequence. That’s the flaw of objective models. I’m applying some human oversight, some subjectivity when I assert my confidence that a bottom has been formed.
¹VOLN averages: 50-day 994.25mm shares; 200-day 1246.1mm shares.