|While a high ADX shows a strong trend and is desirable, an ADX higher than 45 can lead to severe profit booking and an end to the trend. From there the stock may enter into a broad consolidation range. Fresh longs should be avoided at this point and profits should be booked on existing positions. |
|Figure 1: Daily chart of copper futures.|
|Graphic provided by: www.esignal.com.|
|Consider the Copper futures daily chart. It is apparent that copper has been on a relentless bull run in recent months. Now the ADX is at 53 and has begun falling. This is an extraordinarily high value and profit booking or consolidation can be expected until the ADX comes down to reasonable levels. In this situation the chart should move sideways for a while before it decides its future direction. In other words, instead of buying I would advise booking profits on existing positions. The daily MACD is also indicating sell.|
Figure 2: Weekly chart of copper futures.
On the weekly chart, the ADX is at very high levels and a long consolidation, perhaps for months on end, looks likely from here. Fibonacci retracement levels drawn from different lows lead to a confluence level of 11400. This could become the lower boundary of the consolidation pattern, although we should wait for market confirmation.
|Finally, no tree can grow to the sky and traders need to remember this. At least partial profits should be booked when the chart is looking overbought because the pendulum can swing the other way and substantial profits and more can be eroded away.|
|Title:||Chief mkt strategist|
|Phone # for sales:||9871066337|
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