From the Desk of Ian Culley @IanCulley
Dr. Copper is limping into the close – on pace for its worst week since last November.
The risk-off tone that began earlier in the week is intensifying. Crude oil is turning lower. Gold is pulling back. And the equity indexes are drowning in a sea of red.
But nothing stings stock market bulls quite as badly as the breakdown in copper futures…
Copper just undercut a key polarity zone marked by the August 2022 pivot highs.
Those pivot highs represented a critical level of resistance that became support earlier this year. Fast-forward to today, and former support has given way to the bears, highlighted by an oversold reading on the 14-day RSI.
The path of least resistance now leads lower for the market’s chief economic barometer.
Dwindling demand for copper suggests an economic contraction around the bend. More importantly, it doesn’t bode well for cyclical assets and commodities in general.
My mind immediately turns to copper mining bellwether Freeport McMoRan $FCX. Check out the daily chart:
FCX is printing fresh six-month lows as it completes a multi-month topping formation.
I want to give Freeport the benefit of the doubt as long as it holds above the September 2022 pivot high at approximately 33.75. The chances of that level holding seem thin based on today’s broad selling pressure. Nevertheless, that’s my level.
Risk assets across the board are falling under a fresh round of selling. Bulls need to step in quickly and repair the damage.
I bet most of us have a few investments or open trades that have turned against us this week. I’m sure you would like to see those reverse in your favor – I know I would!
But the overall market – stocks and commodities – have one key reversal in mind this week: Dr. Copper.
COT Heatmap Highlights
- Commercial hedgers cut their long cotton position by 9,000 contracts after falling within 6% of three-year extremes last week.
- Commercials dropped 14,000 contracts from their largest long position in soybean oil in three years.
- And commercials reduced their long exposure to Chicago wheat yet remain within three percent of a three-year extreme.
Click here to download the All Star Charts COT Heatmap.