Cautious Optimism On Copper

Technicals | Sep 26 2018

Bottom Line 25/09/18

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Down
Support Levels: 2.60 / 2.13
Resistance Levels: 2.88 / 3.00 / 3.39 / 3.49 (new contract)

Technical Discussion

After a solid past week or so of price moves, Copper markets were weak last night and are continuing to trade lower in Asian markets in early trade today [Tuesday]. The fundamental concerns continue to be given in relation to the trade war between the U.S and China, especially as anything that weakens demand economically is going to affect industrial metals such as Copper, with China being the number one consumer of the metal worldwide. China calling off planned talks with the U.S is clearly another bump in the road, with the chances of the two getting together across a table before the U.S mid term elections now looking remote. All this is going to do is draw out the uncertainty in relation to trade, and as we know markets do not like uncertainty. Lets check in on the technicals.

Reasons to be cautious below [US$/lb] 3.00:
→ surpluses reducing or reverting to deficits being monitored
→ Price back below the 200 day MA
→ resistance at 3.00 is strong

We like the bounce off the 18th September low at 2.59 which also locked in a key outside reversal day on above average volume. This was after a number of previous attempts to break below the 2.60 support line. The upside follow through since then has been solid, especially with the high volume spike north just two sessions ago. Smooth impulsive price action is exactly what we look for if price is going to have any chance of sustaining the move outside just a few trading sessions. Last night was a weak session yet it was on well below average volume.

So basis this there is no reason for concern just yet, even with the negative rhetoric about China / US trade talks continuing to dominate the financial headlines. We are not saying the worst is over for Copper though as it has been in a chronic downtrend for a many number of years now, so there is still plenty of work to do here before we are convinced that the worst is over. Minor dips aside over the coming weeks, what we need to see from here is for price to break above 3.00 and then the 200 day moving average which is just above. Any such move that sticks will certainly be seen as a big positive for a contract that has been in the wars for such a long period of time. Happy to let price lead the way from here to provide us with further insights over the coming weeks.

Trading Strategy

We are presently long basis the double bottom trigger as mentioned above 2.77, yet we are certainly looking for more than pattern target circa 2.97 over the medium to longer term. So we are long early and aggressively at 2.72 with our stop position presently at 2.55. We will leave the stop where it is for now, yet we will be looking to raise it to breakeven if a higher swing low pattern can trigger from here. A good start to the trade yet we are certainly not out of the bearish woods just yet. 

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