I’ve been sweating on copper approaching chart supports for some time. Now looks like the time for a post
Copper has had a volatile few months.
Donald Trump’s election extended a major rally based on expectations of a big boost to infrastructure spending. Around one third of copper demand comes from construction. Another third comes from electricity (wiring and transformers) which would also get a boost from major infrastructure programs
Disruption to supply in the world’s 3 largest mines lent further support to the copper price in early 2017. Escondida, Grasberg and Cerro Verde represent about 11% of global supply.
However, all this has turned around over the past couple of months. The market now has real doubts about Trump’s fiscal stimulus. Strikes at the Escondida mine in Chile and the Cerro Verde mine in Peru have ended. Recent data shows a build-up of stocks in China.
For all the recent negative news, the medium term outlook for copper looks positive. Copper demand is mainly about China. It accounts for over 50% of world demand. Last weekend’s data on China’s economy was positive. Authorities are only taking o baby steps towards winding back stimulus. Credit growth remains strong, meaning the housing construction downturn should only be mild this year and the government’s infrastructure building program continues.
That suggests copper could find a base before too long and this fits with looming chart supports.
I am looking at 3 possibilities for a turning point on the big picture, weekly copper cash chart.
Level 1: This is the potential trend line that price has just hit.
Copper needs to bounce off this trend line for a third time to confirm it. A move above yesterday’s high on the daily chart at 255.5 would look like rejection.
The encouraging thing is that if confirmed, this trend line would look like the base of a large expanding pattern and the next major move could be a rally to the pattern resistance.
The worry is that the slow stochastic in the box below the chart is still trending lower, indicating potential downward momentum. This means I definitely want to see evidence of a bounce off this support before acting. If there is no bounce we could test lower supports
Level 2: This is the 50% retracement and the level where the latest “CD” swing would be the same size as the preceding “AB” swing. This is around 2.43/2.44. For good measure the 200 day moving average currently intersects at this level as well.
Level 3: Is the 61.8% and the level where the CD swing is 1.27 times the size of the AB swing. These are both key Fibonacci levels and intersect at around 2.35.