A Knife Edge for Industrial Metals

The price action of the major metals companies are starting to break down and it would appear they are leading us lower as Copper is at the last point of support. With Thursday’s weakness on the overall market, Copper actually traded up slightly on the day.

We can see the RSI continues to stay below 60, which is usually a bear market trait.

While the chart has not broken down here, it is an important data point. First of all it has a 3-year topping structure which is not bullish currently.

The PPO measures momentum and it is below zero, which is also a weak indication.

I am sure a trade deal with China would probably turn this up, but it looks very weak here. When the trade deal comes, that would be a great time to get bullish this space, but right now, not so much.

Some of the biggest miners in the world are also breaking down.

BHP is always one to watch. We can see some negative divergence forming on the chart with the new 52-week high in July having a lower high in momentum. If the relative strength up trend breaks, I would suggest the selling will get more aggressive. The SCTR is falling below 50, which is a clue that the stock is not being supported as well as it has been. Notice the two previous drops below 50, the stock underperformed for a while.

RIO has fallen a little farther than the BHP stock. It is down at the 40 week moving average shown in green.  Again, the negative divergence is showing on the PPO momentum indicator. The reason it is negative divergence is the momentum is lower than the previous high while price makes a higher high. We usually see these big divergences on weekly charts.

With the weakness in these stocks starting to show on the indicators, it may accelerate if Copper loses support. Caution is warranted here.