We have been writing about the decline in copper since 2012, and during the last three years the pattern has developed mostly as expected. The decline appears to have farther to go, although there should be a corrective bounce soon.

Consistent with our forecast for an upward-trending U.S. Dollar going into 2017, we believe copper futures are tracing an extended fifth wave down into an important Fibonacci target. The monthly chart below illustrates several points about what to expect.

As context, copper’s orderly decline from its 2010 all-time high can be viewed as the structural counterpart to the sharp decline during 2008. The earlier move formed wave ‘A’ of a large corrective pattern and was followed by a three-segment ‘B’ wave up to the 2010 high. In subsequent years, wave ‘C’ has presented a seemingly inexorable series of lower highs.

On a smaller scale, the pattern delineated as triangular wave [iv] acts as an important landmark in mapping the decline. The triangle should be followed by a five-segment downward breakout, and the fractal moves within the breakout should also have a five-segment character. So far, this expectation has played out. Price appears to be nearing the end of smaller wave (iii) in the (i)-(ii)-(iii)-(iv)-(v) sequence out of the triangle.

 

 HulseOct29.jpg

 

 

Traders acting on faster time frames – daily or weekly – may wish to take profits from existing short positions. While there might be opportunities to trade the expected wave (iv) upward, we do not expect that to be easy. It is not clear how far price will travel in upward wave (iv). It could reach as high as the main lower boundary of the Schiff channel shown (solid gray line), or it could develop as a sideways move.

A better opportunity may come from looking for short entries later in 2015 or early in 2016. The Fibonacci target area near 1.85 remains attractive. In addition, the geometry of the Schiff channel and its harmonics may give clues about where smaller wave (v) of [v] of ‘C’ may begin and may terminate.