With news of China not being in the pits as some had expected, the materials sector has picked itself up and dusted off from being one of the worst performers for 2013. Copper has also benefited from the tick higher in the materials space. In February I wrote about the bearish setup taking place in Copper. We had a rising wedge with resistance sitting just above the would-be breakout point. However I wrote about the bearish divergence that was hinting at a possible break to the downside in the copper market. Copper eventually did break down and fell nearly 25% to $3.00 over the next five months.
With the downtrend from the February high we were able to draw a trend line through the lower high in May (dotted blue line). With the recent price action, copper has been able to break above this trend line and test the May high of $3.40. This also happens to be where the 50% retracement level sits from the prior correction off the February ’13 peak.
What I’ll be watching for is if copper bulls are able to put in a higher high above $3.40 to shift the price action back into a rising trend. Looking at momentum, we are currently working off a traditionally oversold level which is actually a positive. This tells us that buyers were stepping in in-force to get price to the current level. Copper bulls will need to keep the Relative Strength Index in a bullish range with support near 45-50 to maintain confidence in the possibility of a further advance. In December we had fairly bearish data coming out of the Commitment of Traders report as Commercial Traders were aggressively selling copper futures contracts. Well it seems the tide has shifted with Commercial Traders buying copper at levels that previously market lows in price – we will see if this time is any different.
Disclaimer: The information contained in this article should not be construed as investment advice, research, or an offer to buy or sell securities. Everything written here is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned.
