It looks like we can name the top beneficiary of Mr. Trump’s win.
Chart 1. 1-Month Futures Relative Performance: Copper Is Unrivaled As Trump Favors Infrastructure
Chart courtesy of finviz.com
It’s amazing that the ultimate gainer during the final election period is the metal, not the stock index or currency. Besides that in the top three, there is another metal – palladium, which is also an industrial metal (used in catalyst for the automotive industry). In the past month, which was hot and dramatic, copper topped the ranking with a +17% gain as the U.S. dollar only scored a +4% gain and the S&P 500 scored even less with a +2% gain.
I think that every shift in the White House gives people hope for positive change. Copper buyers are hoping that the new president will fix the country's aging infrastructure system, which requires an enormous amount of copper and other industrial metals to be procured. "Rebuild the country's infrastructure; nobody can do that like me, believe me," he said. Giant projects require huge expenses; Mr. Trump pledged to spend up to $500bn upgrading roads, railways, airports and bridges across the US. That’s it; it was enough for the speculators, mainly from China, to lift the price of the metal.
Is this euphoria going to continue? Let’s look at the chart below for answers.
Chart 2. Copper Weekly: Triangle Exploded Upside
Now for the first part, you know who let the ‘dogs’ out. Copper finally got unchained from the multi-year downtrend breaking above the resistance (highlighted in red). It was done in the largest weekly candle for the past 30 years. Market rumors that Chinese traders moved the market in a wild manner as with Mr. Trump’s victory the United States would compete in demand for the reddish metal with China, which stands to be the top copper consumer.
One event, which is commonly referred to as a ‘Black Swan,' could change the world. I don’t know yet if it is a Black or White Swan as history will show which is the right color for it. But dramatic changes are surely underway after an unexpected shift in the White House.
In my previous copper post I called to watch over the integrity of the Contracting Triangle pattern’s downside as price came down to support. The trigger point was set at $2.07. The metal dipped only to $2.085 level and sharply reversed up to $2.20 level scoring more than 10 cents for a week. This again proves that the traders should wait for a confirmation to withstand psychological bias to enter the trade on any market move.
The upside trigger was set at the $2.24 mark (that time it looked to be too far to be hit), and it was hit and broken up in the next candle of the smaller size. This, in its turn, validated the call for the upside target of the Contracting Triangle pattern set at the $2.64 mark (black dashed horizontal line). The target was successfully hit with that very candle, which broke the red multi-year resistance.
The pattern delivered quite well and now we should focus on a further plan. The bullish scenario has been started with a breakup of a multi-year resistance. It is good to enter the trade on pullbacks after the breakout. As most people react emotionally and couldn’t resist the strong desire to enter on the big move, especially when it scored a big gain already and in fact losing its steam and speed. During this period people tend to think that the move is everlasting and unstoppable. The red candle of the week ended on 18 November tells opposite – the price already has lost about 27 cents (10%) from the peak at $2.73.
I highlighted with the blue circle the potential area of the pullback where the market can find a new demand for a further rise. The range is set between the $2.24 mark, where the 61.8% Fibonacci retracement level is located and $2.10 mark, where the 78.6% Fibonacci retracement level is. In the mid, there is an additional support area consisting of former trendline resistance and the Triangle’s upside.
The upside move now could meet resistance at $2.96-3.00 (which will be a first target for the bounce). The break below $1.90 would invalidate the bullish scenario and we should elaborate a new plan then.
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.