If Copper is actually going to put together a decent bounce higher, this seems like a logical place for that bounce to begin. This metal has been trending lower for 2 1/2 years, but we’ve still seen some nice rallies within the ongoing downtrend. In fact, when we were last down here at these prices (October of 2011), Dr. Copper rallied 35% in four months.
Here is the weekly bar chart of Copper Futures. I see a pretty clean uptrend line from the September lows back in 2009. It was tested a second time in the summer of 2010, and then again recently this Spring. What I like about this chart is the potential false breakdown last month, where prices temporarily breached that trendline support before quickly flipping back to the positive side. That brief break took Copper down to the 2011 horizontal support (shaded in gray):
I also like the momentum divergence that we’re seeing on these new lows in price last month. Notice how the relative strength index put in a higher low to confirm a bullish divergence.
If you’re into owning copper or for any reason think it’s “cheap” down here and are looking for a place to give it a shot, this seems like a logical area. The risk/reward is also cut and dry. You’re basically owning it against these recent lows, and you’re wrong below them. Because down there under 3, things start to get really messy. I wouldn’t want to be in this thing below the recent lows. I think it’s that simple.
How much of a bounce we could actually get is another concern, however. Is it even worth the risk? We have a declining 200 day moving average as well as May horizontal resistance just above 3.40. And right now we’re running into a downtrend line from the Super Bowl highs (where European stocks and $EURUSD currency both peaked). So you be the judge. Does this risk/reward fit your parameters and objectives?
As interesting as I find this chart, I’m not ready to jump on board yet. But I think pointing out the possibility of a bounce is important as this could/should have an impact on other asset classes that I’m currently participating in. So one way or another, these recent developments are something I need to watch closely.
Tags: $JJC $HG_F