From the Desk of Ian Culley @IanCulley
Risk assets are taking a hit.
The major equity indexes are seeing red. Crude oil is slipping below eighty bucks. And gold is failing at new all-time highs.
Perhaps the markets are navigating the summertime blues – a tune base and industrial metal investors have been humming for months.
Remember copper’s failed breakout in May:
Oof!
Dr. Copper is living up to the trading adage that from failed moves come fast moves in the opposite direction.
The futures continue to fall – down almost 8 percent this week.
Meanwhile, track the 4.16 level for potential support:
That level coincides with a key retracement and former resistance area – a logical place for buyers to step in and defend price.
On the other hand, momentum is drifting toward oversold conditions. If the 14-day RSI drops below 30, I imagine copper will reach four dollars.
Nickel futures are also slipping back into the box:
After reclaiming the 2022 lows, nickel has fallen over twenty percent toward its year-to-date low of roughly 15,750.
Nevertheless, the 14-week RSI registering its highest reading in two years is an impressive data point. We'll see if buyers can follow through later this fall.
You can also add aluminum to the failed breakout list.
While copper posted new all-time highs, aluminum was reclaiming its 2018 highs. And just like copper, the aluminum rally fizzled:
Risks are now to the downside as long as aluminum trades below 2,500.
Steel, on the other hand, never broke out. Instead, it’s violating a four-year trendline:
Trendline violations alert investors to the early stages of a downtrend. If steel futures hold above the 2022 low of 658, I'll give them the benefit of the doubt.
But all bets are off if steel crumples toward its 2020 lows of approximately 450.
Last but not least, rebar futures are breaking down to their lowest weekly close since 2017:
I don't trade rebar, but the 2,675 level is a possible downside target.
Could rebar's breakdown turn out to be false? Absolutely.
Could the numerous failed breakouts above – including copper’s – be nothing more than premature moves? One-hundred percent!
But before we adjust our outlook, buyers must reclaim critical resistance levels. Until then, base metals and their related stocks are an opportunity cost.
Stay tuned.
COT Heatmap Highlights
- Commercials post their largest net-long position for soybeans on record.
- Commercials pull within six percent of record short exposure to coffee futures.
- Commercial hedgers carry their largest short position for the British pound in history.
Click here to download the All Star Charts COT Heatmap.
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