Stabilization techniques, fundamentals in question
Copper Price Outlook:
- Copper prices almost rebounded significantly in July. Not quite yet because more technical resistance remains above.
- Demand has not recovered since the announcement from China that the government would release stocks of industrial metals to cool their respective rallies.
- Trading is a function of both price and time; technical uncertainty can be resolved either by a correction in price action or by a more lateral cut.
Minor recovery so far
Since late May, when news emerged from China that authorities would take action to curb the “unreasonable” appreciation in industrial metal prices by releasing inventories, copper prices have been under pressure. But with falling US Treasury yields and US equity markets pushing (again) to new highs, risk appetite is on the rise, providing narrative relief for struggling copper prices.
But the fact remains that the fundamental picture specific to copper prices has not improved either: according to Reuters, “oStocks of warranted copper in LME-registered warehouses hit their highest level since May 2020, as Yangshan premiums for the metal entering China languished.”
In other words, demand has not yet absorbed all of the recent additional supply. The gains seen since the end of June have so far proven to be only a minor recovery, as a technical resistance group persists.
COPPER PRICE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to July 2021) (CHART 1)
At the end of May, it was noted that “a return to the old annual high set in February at 4.3755 may be on the horizon before buyers return to the market”. Copper prices briefly collapsed below the old high in late June, but in the first week of July, the level recovered again after the price rebounded before the 23.6 Fibonacci retracement. % of 2020/2021 high range at 4.2000.
For now, momentum indicators are still working on recent oversold conditions. Copper prices are above their daily envelope of 5, 8, 13 and 21 EMAs, but not yet in a bullish sequential order. The Daily MACD tends to rise but remains below its signal line, while the Daily Slow Stochastic is already on the verge of re-entering overbought territory.
Lingering just below the February 2021 high of 4.3755, it looks like a confluence of resistance is still to come: July high at 4.4025; the ascending trendline of the oscillating lows of late February and March; and the ascending trendline from the swing lows of September 2020 and February 2021. Breaking this confluence of resistance would now put copper prices on a more confident bullish basis.
COPPER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (November 2008 to July 2021) (CHART 2)
The point of view noted in mid-February remains valid: “The break in copper prices above the downtrend line from the February 2011 and June 2018 highs suggests that a multi-year trough process began in mid-2020. This view is reinforced by the failure of the bearish breakout in early 2020, which saw support for the multi-year symmetrical triangle temporarily lost for a few weeks. “
“The elimination of the June 2018 high officially ended the multi-year streak of ‘highs and lows.’ As long as the uptrend from the March and October 2020 lows continues, copper prices will maintain a bullish bias. ”
— Written by Christopher Vecchio, CFA, Senior Currency Strategist