From the desk of Tom Bruni @BruniCharting
Copper is important for a variety of reasons, but it’s often discussed within the context of global growth expectations.
Given we just hit 2-year lows it may be a good time to discuss Dr. Copper, why he may be headed into “critical condition”, and what it could mean from an intermarket perspective.
Here’s a daily chart of Copper going back almost three years. In June of last year, prices began to pull back and ultimately retraced 61.8% of their 2016-2018 rally before putting in a low and building a base. For 8 months prices consolidated between 2.55 and 2.90 before attempting a breakout, which ultimately failed 10 weeks later.
Today we’re back at the bottom of this year-long range for the fourth test of support near 2.55. Momentum is in a bearish range and prices are making lower highs and lower lows, so despite commercial hedgers sporting their largest net long position in 3 years, it appears that sellers remain in control.
Click on chart to enlarge view.
After a swift 10% decline over the last three weeks, momentum has begun to diverge ever-so-slightly and could spark some near-term strength, but longer-term we know that the more times a level is tested the more likely it is to break. Maybe our fifth test of this level won’t go so well.
If prices do ultimately close below 2.55 then the risk of further downside towards 2.30 and eventually 2.10 rises…and that’s probably not occurring in an environment where Equities as an asset class are ripping to new highs.
The signals we’re getting from Copper, Bond Yields around the globe, and risk appetite measures like AUD/JPY breaking to new lows are all pointing to weakening growth/inflation expectations.
As a result, we’re watching to see if these intermarket signals can find their footing and begin to head in the right direction.
For now, Dr. Copper is in critical condition and needs all the help he can get.
Thanks for reading and let us know if you have any questions!