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A False Alarm? November 29th, 2019 by John Gross

The last two issues of this missive advised keeping an eye on energy markets, as crude oil and natural gas had broken through overhead resistance, and looked poised to move higher.

Last week, however, both markets fall precipitously, and now they are headed toward a test of support.

Those who are guided strictly by the fundamentals will quickly point out that both markets are amply supplied, and therefore, higher prices were not warranted.

One cannot argue with that logic, but over a protracted period of time, we have evolved from being guided solely by the fundamentals, to focusing more on technical considerations, because, in large part, markets are now driven by speculative traders, and hedge funds using technical analysis, and computer models to drive their trading decisions.

So, while the breakouts have turned into breakdowns, it is not terribly different from what we saw in gold during 2016 and 2018, or the S&P 500 in the 4th quarter of last year, and both markets subsequently recovered and rose to new highs.

The thing about technical analysis, is that one has to be on top of it at all times because we never know when a trend will change, until or after the change is underway.

As for other markets last week, except for palladium and the S&P 500 reaching new record highs; nickel getting nailed again, and another 91,250 mt of aluminum being made from thin air, there was little change to report – in fact it was perhaps eerily quiet, as prices in many markets have been moving sideways for a few weeks now.

As a case in point, copper has been trading in a 10¢ range, roughly between $2.60 and $2.70 for the past eight weeks, almost as if it is undecided about global economic growth; the trade war that is going nowhere, or perhaps some other event that has yet to reveal itself.

Are we looking at the calm before the storm?

Regards,
John


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