Nickel continued to hit the skids, dropping throughout and just managing to come off its intraday low at $11.2279/lb., 46¼ cents.

Zinc failed to hold above $1, as it slipped to close at $0.9891/lb., down 2¾ cents. Aluminum was up most of the day though it came off its highs around noon, to close at $1.3432/lb., up less than a penny, while lead’s woes were prolonged as it fell to $0.9683/lb., down a penny and a third.

Copper was unable to take any heart in the rising gold and oil prices, as traders remained focused on economic worries.

Also playing in were rising stocks. Inventories monitored by the LME gained 2,300 metric tons yesterday, nearly 2%, to 124,950 tons, although that left stockpiles still 11% smaller than a year ago.

“The underlying cost drivers for the base metals are favourable for headline prices this morning, with crude oil over $130 a barrel and the US dollar softer, especially against the (renminbi),” JP Morgan analyst Michael Jansen said.

“However, the base metals are trading in a mixed fashion with demand concerns carrying slightly more weight today than the other factors,” he was forced to conclude.

Analysts at RBC Capital Markets advanced a different theory for the weakness in the industrial metals, writing that, “Open interest in the metals has fallen in recent days, so we wonder actually if there were some long base metals/short oil and gold strategies that were put on and forced to stop out.”

They added that, “Also, we have not really seen the presence of so-called ‘hot money’ players in the base metals markets in recent days and would imagine they are very active in the oil markets, at least helping to propel prices there.”

In company news, Japan’s Sumitomo Metal Mining Company, which intends to be among the world’s top five nickel producers in the next decade, announced that it will spend about ¥200 billion (US$1.9 billion) to develop a nickel mine in the Solomon Islands in the South Pacific.

The company plans a smelter for the Solomons that will start processing in 2013, with an expected output of 30,000 tons per year. Sumimoto also has two major projects under development in the Philippines, and shares a 21% state with Mitsui in New Caledonia’s embattled Goro project.

Source: Base Metals Remain Weak

There’s a world more that could be said about reading charts, but we’ll have mercy on the folks who cringe every time they see an article with a chart and some doodles drawn on it. The trend lines are basic and if you ever squint at a price chart trying to figure out what it means, this is the one thing you can learn most easily that will give you the most help understanding the information a chart has for you.

We started with bull support three weeks ago. Today we end with its running mate—bull resistance. To refresh: the support line goes under prices to prop them up. This bull resistance travels above the peaks in a bullish (rising) stock to keep prices in bounds.

“Bull resistance” sounds like an oxymoron, doesn’t it? Bulls like rising stocks so much that the higher and faster a stock rises, the more the bulls are inclined to pour in. Resistance, on the other hand, implies the opposite mindset, an aversion to buying.

Yet if you put those notions together, you will get a line that follows the waves of serial enthusiasm that bullish stocks often travel. You might say that this line is formed—not by bulls in general—but by different herds of bulls.

The first thrust of buying and the first peak is apt to come from the so-called smart money—the people who smell out new ideas early. This is often institutions, large investors and industry insiders. Once these buyers have all they want, the price drops back as their demand tapers off.

After that, the buying catches the attention of more people, especially speculators and traders who follow trends. And a new set of bulls comes into the pasture. The momentum “investors” are likely to get in the stock now because they follow price action avidly. When this bunch has loaded up and bought all they desire, the price backs down once more.

But now, the wider media have made note of this wonderful stock, and people who are neither insiders, institutions or other early movers, nor pure trend followers begin to hear stories about the stock. They think it sounds good. That little dip when the last bunch of bulls quit, looks like a good buying opportunity. Surely all those people who pushed the stock up so far must have known something? And yet another wave of bulls begins yet another push.

This is a simple three-wave story to explain the way a bull resistance line is formed. If cynicism were my style, I’d call the process smart money, clever money, dumb money. That oversimplifies, but it remains true that very often the last buyers are much less informed than the earlier ones and do not know it’s too late and the price is already too high.

In a long-term trend, the process may go on for dozens of ups and downs. But you can still get a notion if you are at a dangerously high buying point by looking at the bull resistance line that exists at the time.

By the way, I’ve mentioned in each of these articles that this series is chart smarts for investors. I’m assuming that you are also looking at the company and its quality, not just relying on charts alone. For investors, charts are a nice help, so let’s see what the bull resistance line can do for you.

We’ll look at Steel Dynamics, a good case for why you should track the company as well, and not just the chart by itself when using bull resistance:

Steel Dynamics makes basic steel products such as beams and structural steel, but it also processes and sells scrap metal. That scrap business has gotten more and more valuable with rising ore prices and is part of the reason for STLD’s upward trend. In fact, the stock has been on a bullish trend since 2002, as you can see on the monthly chart below:

In both of these charts, we have the same problem/challenge—where to fit the line. We can tell where to start, you choose the first significant peak after the stock makes its low.