16 March, 2015
Copper is in a long term bear channel and moved in February to a level that has supported price in the past. This was also the first time since year 2008 that Money Flow Index moved into overbought zone in Monthly timeframe. In February 2007 price touched 2.40 level and moved higher over the next two years. Now there was another bounce from the same level and the price of Copper is on the rise for the second month in a row. The nearest resistance level is approx. at 2.72 while the next major resistance is at 2.88.
Copper (an industrial metal) has been stronger performer than precious metals since the latest US Jobs report came in with a surprisingly high number and strenhgtened the US dollar. While Gold and Silver have declined by almost 3% since March 5th Copper has at the time of writing gained 1.1%. However, the US rate hike expectations mean the US dollar strengthens and buying power amongst non-USD based investors decreases for dollar based assets such as Copper. This combined with slowing economic growth in China slows down the Copper bulls and has caused the price to fluctuate below resistance levels. On the other the hand price has held up and even edged higher as market participants believe that easier lending conditions should improve demand in China, the biggest consumer of Copper globally. The price of copper has made two weekly lower highs since touching the 2.72 resistance level (a former support from June 2010) while the MFI (7) is overbought and Stochastics are close to the same levels and hinting that the momentum is waning. This could lead to further fluctuation between the 2.59 support and a high of 2.73 from couple of weeks ago. Other support levels are 2.55 and 2.40, a high and low of the January pivot candle high and low.
The price of copper is near to the upper Bollinger Bands and Stochastics is getting overbought. Price has just recently bounced from a support at 2.59 forming yet another higher low. This was technically a good sign as it confirmed the level that used to resist price moves higher is now a support. The fact that this level now coincides with the lower daily Bollinger Bands makes it more significant support area.
Fundamental factors that both support the price of Copper and resist its move higher translate into a ranging market, price action that honours the technical levels at both ends of the range. Levels near to 2.59 support level used to resist moves higher and are now providing support while the move to 2.72 resistance was rejected. This suggests that short term traders should look for trade opportunities at or close to these levels while longer term position traders might want to consider longs closer to the 2.40 support and shorts closer to the 2.88 resistance levels. This is the likely range copper futures over the coming weeks and months as major news stories or surprises on either the US Federal Reserve’s rate policy or Chinese consumption of Copper they might provide the trigger to move the price of Copper to these levels. Chinese premier Li Keqiang commented that the government will be ready to support the Chinese economy should the slowdown in growth affect employment and incomes. He wasn’t specific on the measures the government might use but a hope of economic stimulus in China should support the price of Copper. Against this backdrop traders might want to be buyers near support levels rather than trying to find shorts. This view would be negated if the US Fed indicated that it would hike rates more than expected. However, it is likely that the Fed will be cautious in raising rates.
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Chief Market Analyst
Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.
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