"Dr. Copper's" Prescription Proves Effective

In February, I presented my analysis of copper and gold/copper price trends in a post titled, Dr. Copper Prescribes Gold. Now, it's time to update both charts.

In the previous analysis, most readers preferred a conservative outlook for copper futures prices, predicting a drop to only the equal distance in the CD part, which is $2.45. Since then, the price has declined, but not as rapidly as anticipated.

Let me show you the updated copper futures chart below.

Copper Futures Weekly

Source: TradingView

As expected, the price action on the Rising Wedge pattern's support played out in textbook fashion, with the price breaking below it and then spiking up to retest it before continuing its downward trend.

The price has now reached a double support zone formed by the purple moving average and the black horizontal trendline, between the $3.78 and $3.83 levels. Continue reading ""Dr. Copper's" Prescription Proves Effective"

"Dr. Copper" Prescribes Gold

The idea behind "Dr. Copper" is that copper is a reliable barometer of economic growth, as the demand for copper tends to rise when the global economy is expanding and fall when it's contracting.

Last December, I shared my bearish outlook for copper futures titled “Fed Fears Inflation, Copper Fears Hawkish Fed”. It was based on the long term map of downward move with a current pullback playing as a junction between large 2 legs down.

The majority of readers expressed a mildly bullish stance, with the belief that the price of $3 for copper futures should hold.

The second largest group had an ultra-bearish outlook, targeting a price of $1.25 during a potential Great Recession.

Let us see in the weekly chart below the updated map.

Copper Futures Weekly

Source: TradingView

The copper futures price stalled at the same level after an earlier attempt to push below the red trendline support failed. Continue reading ""Dr. Copper" Prescribes Gold"

Fed Fears Inflation, Copper Fears Hawkish Fed

Copper futures have closely followed the trajectory of the zigzag that was outlined this summer in the post titled “Copper Fears Recession”. Below is a copy of that monthly chart to refresh your memory.

Copper Futures Monthly

Source: TradingView

The majority of readers bet that the price would remain above $3. Within the same month, the price reached a valley of $3.13 and subsequently recovered. This vote is still valid as the price hasn't crossed that handle yet.

In the next weekly chart update, we will examine the outlook further.  

Copper Futures Weekly

Source: TradingView

This is a closer look at the second red leg down shown on a bigger time frame in the summer. When the first leg up within a bounce in copper futures was unfolding, it looked promising at the beginning. Continue reading "Fed Fears Inflation, Copper Fears Hawkish Fed"

Copper Fears Recession

The copper futures hit an all-time high this spring. This is not a surprise to many readers who suspected it would - see the poll from late August.

The price has topped at $5.04, missing the preset target area between $5.36-$5.41. After that, copper futures collapsed below the valley of the last summer ($3.96) in the area of $3.60.

See the latest stats for the copper market in the table below.

World Refined Copper Usage and Supply Trends

Source: The International Copper Study Group (ICSG)

According to the table above, the world refined copper production has increased to 8.44 million metric tons in the first four months this year, compared to 8.16 million metric tons for the same period last year.

At the same time, the world usage or demand has grown up either to 8.35 million metric tons in January-April this year from 8.17 million metric tons last year.

As a result, this year the copper balance turned into a surplus of 95 thousand metric tons compared to a deficit of 3 thousand metric tons last year. Moreover, if we take the last line of the table that shows the refined balance of the market adjusted for the Chinese bonded stock change is in even bigger oversupply of 213 thousand metric tons.

As we can see, the market fundamentals could have undermined the uptrend in the copper price in the first place. The following speed up of the futures collapse was fueled by the hawkish Fed, Chinese lockdowns and a new scaring mantra that has been circulating recently in the media about upcoming recession.

One could call it a self-fulfilling prophecy as last Friday the Atlanta Fed posted a second quarterly decline of a real GDP in a row on its GDPNow tracker. The second quarter reading is minus 2.1%, the first quarter reading was minus 1.6%. Technically speaking, this could mean that the forecasted recession is already here.

The auxiliary economic data from the graphs below also confirms the economic headwinds for the copper market.

US PMI vs Copper

Source: tradingeconomics.com

United States ISM Purchasing Managers Index (PMI) (blue) fell to 53 in June of 2022 from 56.1 in May, demonstrating the slowest growth in factory activity since June of 2020, and below market forecasts of 54.9.

The robust uptrend of copper futures (black) in 2020 was in an accord with U.S. PMI until the start of 2021 where the factory activity has peaked and then started to collapse. The copper price firstly continued further up on the market inertia and then dropped huge to finally catch up with the current fundamentals.

China Industrial Production vs Copper

Source: tradingeconomics.com

The similar situation has been seen in the chart above of Chinese industrial production (blue). The “World’s factory” performance has also peaked last year, ahead of the top in copper futures (black).

We could see here that the metal has more room to the downside into the $3 area to reach the corresponding level of Chinese data. It is worth to note that the industrial production in China has grown up by 0.7% recently after a relaxation in COVID-19 curbs in some major Chinese cities.

US Consumer Sentiment vs Copper

Source: tradingeconomics.com

To complete the picture, we should look at the chart above that shows the U.S. consumer confidence (blue) as a main indicator of the initial demand.

The situation is even more depressed here as we can see no progress since the pandemic outbreak. The indicator just made a small rebound within the consolidation in 2020 and then continued to the downside to hit the record low of 50.0 in June 2022.

Let’s look at the updated chart of copper futures below.

Copper Futures Monthly

Source: TradingView

The copper futures price goes well with the plan posted almost a year ago. It didn’t advance too much to the upside to fit with the extended consolidation pattern. We entered the red leg 2 down.

The latter could unfold either like the first straight leg down with a panic selling amid financial crisis of 2008 or it could build a zigzag with a corrective phase in the middle of the drop. More often than not, two legs are not alike.

Two possible downward targets could be set. The closest one is computed using the distance of the first red leg down subtracted from the new all-time high; it is aimed at $2.02. This area coincides with the valley of 2016 and 2020.

The next target is an old one as it Is located at the minimum of the first red leg down at $1.25.

The RSI sank below the so-called “waterline” beneath the crucial 50 level. If it closes this month there than the bearish trend is confirmed.

How deep could the copper futures collapse?

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Intelligent trades!

Aibek Burabayev
INO.com Contributor

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.

Copper Is On The Verge

Almost two years ago, in my previous copper update, I called for a big jump of the metal’s price to an ambitious target of $4.65 in the quarterly chart. I put it below to refresh the memory.

Copper Chart

Firstly, the price collapsed to pierce the double support shown in the chart. Only after that, it quickly rebounded to the upside as it hit the preset target of $4.65 this May. I hope you enjoyed that long rally.

Another model, posted almost three years ago within an educational experiment advanced very well, although it did not hit the target yet, as did the pattern shown above. That charting exercise drew a lot of attention and feedback at that time. Moreover, the majority of readers bet on this well-known pattern. Continue reading "Copper Is On The Verge"