Tuesday, April 19, 2011

The Copper Market; An Overview

The multi-year chart of copper shows that prices are right at levels achieved during the height of the last expansion. Prices -- like most commodities -- crashed hard during the recession, but are now in a clear uptrend. After bottoming, prices rallied, fell to the 200 day EMA (which was also a key Fib level) and continued their advance until meeting resistance at previous levels.

The primary reason for showing the one year chart is to demonstrate that prices have clearly broken a long and therefore important uptrend.

The technical indicators are mixed. The A/D and CMF both show money flowing into the security. However, the MACD shows declining momentum and the primary MACD line is below 0, indicating declining momentum.

The shorter charts shows prices broke out of a downward sloping channel, only to quickly fall back below the upper trend line. The EMAs are neutral, wound in a tight group that is giving away no sign of direction. However, prices are still above the 200 day EMA, indicating we're in a bull market.

Copper has problems from the fundamental side. China has raised interest rates and reserve requirements over the last week. In addition, a copper market glut in China is still possible. The US is also looking at a slowdown, and Japan has plenty of problems. There is also plenty of inflation talk, which will probably be lowering demand for commodities overall. In short, it will be exceedingly difficult for copper to move through current levels.

At this time, I see copper treading water for the next 2-4 weeks, staying below key resistance levels as traders wait to see how the fundamental situation plays out.