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"

Copper Update: Compressed Spring Could Snap Back Hard

I’ve had a bearish outlook for copper for the past 2 years, starting with my post back in September 2017 when I had doubted the metal’s ability to sustain a long-term rally. Last July, we got the final confirmation of the trend reversal to the downside. And this past February I shared with you a promising trading opportunity, which had appeared in the copper market as the short-term upward correction invited the bears to sell the copper again around $3.

Indeed, copper has plummeted since then reaching the $2.48 low at the start of this month, but the following rapid bounce into the $2.70 area signaled a possible reversal ahead.

Let’s check the charts below to see if we can find some clues behind this worrisome price action.

I start with the weekly chart as I spotted a bullish pattern there already.

Weekly Cooper Chart
Chart courtesy of tradingview.com

As I said above the price printed the low of $2.48 and quickly reversed then. I added the Fibonacci retracement level of 61.8% to the chart, and you can see now that the price bounced right off it. In my February post, I applied AB/CD segments to set the target area for an anticipated drop and even used the extension ratio, where the CD is even larger than the AB segment. Continue reading "Copper Update: Compressed Spring Could Snap Back Hard"

Copper Trade: Stopped Out

A month ago I got the short entry trigger in the copper futures. The idea started to emerge this February, and I was watching copper closely from that time and posted updates for you. And you witnessed how I moved entry triggers higher and higher until the price has finally pushed below the last one. And this was the true benefit of avoiding simple guessing to wait for the signal.

In the chart below I would like to show you how that trade was managed and what the outcome was.

Copper Futures Daily Chart: Walked Away Without A Scratch

price of copper
Chart courtesy of tradingview.com

The price of copper showed great volatility around the entry level (blue line) moving within a 10 cent range between $2.87 and $2.97. This happens due to a clash of opposite market forces at the extreme levels. Finally, the bears took the ball and pushed the price not only below the range but also below the crucial orange trendline support. Copper has hit the one month low at the $2.8345 on the 25th of March. At that stage, the short position had a profit of 3%, and I moved the stop to breakeven to enjoy the safe ride. This is a part of trade management as we should try to avoid risks as much as we can because we cannot control the market; we can only control ourselves and manage our risk. Continue reading "Copper Trade: Stopped Out"

Copper Triggered A Short Entry

So, dear traders, our patience was finally rewarded last week. Copper has provided us an even better opportunity as the price climbed higher to make a deeper retracement and the distance of the drop is now even greater. We started from the $2.75 level, then we moved higher to $2.885, but none of them were activated.

I spotted the famous reversal pattern on the chart, which adds to my structure analysis and I will show it in the chart below.

Let’s go through the trade setup steps again as the entry signal was triggered.

Step 1. Chart Analysis and Step 2. Trading Idea

These steps can be skipped as we already know what we are looking for.

Step 3. Trade Setup

We should prepare a Sell Setup to enter the trade using specific entry, stop and take profit levels. These are the things that make a trade. If you don’t have all three levels in your mind, you better avoid trading as it would become mere gambling. Continue reading "Copper Triggered A Short Entry"