An Early Warning Sign for a Pullback in Stock Prices…

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February 26, 2013 1:39 pm est

Feb 26th 2013 8:45am est

An Early Warning Sign for a Pullback in Stock Prices – Copper dropped 5% last week.  The metal has long been viewed as a leading indicator of stock prices. Investors should pay attention, because when copper catches a cold, the stock market gets the flu. And last week, copper sneezed… Copper broke down through its short-term rising support line (the red line). It also crashed through intermediate-term support (the bottom blue line). That’s one heck of an ugly move.

But even more significant is that copper has now broken down from its consolidating-triangle pattern (both blue lines), which suggests that the metal is headed even lower – perhaps all the way back down to last summer’s low.

The most disappointing part of this development is that up until last week, copper was trading in a very bullish formation. The chart showed a pattern of higher highs and higher lows. It looked poised to break to the upside of the consolidating-triangle pattern. This bullish look to copper was one of the reasons that – despite all the technical caution signs flashing in the market – I wasn’t willing to turn aggressively bearish on stocks. That reason doesn’t exist anymore.

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