Was that it?
Is that all there is to the great intermediate-term correction of 2011? A handful of bad days in a row and a measly 90 points trimmed off the S&P 500?
It sure looks that way.
The S&P has recovered all but a few points of what it lost during the breakdown earlier this month. It’s an impressive performance. After all, if stocks can hold up in the face of a potential nuclear meltdown and the start of military action in yet another Middle East country, imagine what they’ll do when the trouble fades away.[ad#Google Adsense]Of course, it doesn’t hurt that the Fed is pumping $6-$8 billion per day into the financial markets through its various quantitative easing programs. Nonetheless, price action is key… And price action has been persistently bullish.
Will it stay that way? There are plenty of reasons to be skeptical. It does seem like quite a stretch to believe the overbought conditions created by a near-vertical rise in the S&P 500 – which rallied the index almost 30% over the past six months – can be corrected by giving back just 7% in two weeks.
But there are also plenty of reasons to remain patient and avoid the temptation to get too aggressive betting on the downside. At least until this chart of copper falls apart…
Copper has become a leading indicator for stock prices. It peaked last April about three weeks before the S&P 500 rolled into the “flash crash.” It then ended its correction about three weeks before stocks bottomed last July.
This year, copper topped out in early February – about two weeks before the S&P started to fall.
So if you want to know where stocks are headed next, keep an eye on the chart of copper. Right now, copper’s bumping into resistance near 440. If it breaks above that level, it should be able to challenge its February highs, and stocks should continue to rally.
On the other hand, if resistance holds, support at 420 becomes the critical level. But if copper fails to hold at support, the rally in stocks should fail as well.
Best regards and good trading,
— Jeff Clark[ad#jack p.s.]
Source: The Growth Stock Wire