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Base Metals Rally, Despite Declines in other Commodities

David Becker
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Base Metals Rally, Despite Declines in other Commodities

While precious metals such as gold and silver, along with and oil fell again this week, the Base Metals ETF (DBB) caught a bid and held its breakout. The weekly bars for DBB over the last three and a half years, show a positive trend. The ETF broke the 2011 trend line and exceeded resistance with a move above 17 this summer. DBB then pulled back the prior three weeks and bounced this week. This amounts to a successful test of the breakout and keeps the uptrend alive.

The Base Metals ETF consists of aluminum, copper and zinc, in relatively equal parts. Strength in two of the three is all it takes to move this ETF higher. Zinc and Aluminum are in clear uptrends. Spot Zinc hit a 52-week high in July and corrected over the last few weeks. Spot Aluminum hit a 52-week high this week and remains the strongest of the three. The Aluminum ETN (JJU) is breaking a trend line and moving above 20 to record a 52-week high this summer.

The Copper ETN (JJC) within a four-year downtrend. The JJC is currently in the midst of a counter trend rally and at a moment-of-truth. Notice how it failed at the trend line zone and pulled back in July. JJC surged over 2% this week and a break above 40 would provide the first sign that this long-term downtrend is ending. The trend line extending up from March marks support just below 38. A break below 37.5 would reverse this counter trend advance and signal a continuation of the bigger downtrend.

Momentum on JJC has turned positive with the MACD (moving average convergence divergence) index generating a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.

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