Copper "Bull Market" Takes a Vacation?
Fundamentals
Copper traders have apparently been on spring break the past couple of weeks, as the market has become range bound following a nearly month-long 65-cent rally in Copper prices. The consolidation seems to be tied to confusion regarding the direction of the Euro Currency vs. the U.S. Dollar, as the financial situation in Greece is anything but settled. Copper supplies at the London Metal Exchange (LME) continue to fall, with exchange Copper stocks currently totaling 520,675 metric tons as of Tuesday morning, which may show that demand for the physical metal is picking up. However, the future demand outlook for China looks muddled, as traders fear the continued tightening monetary policies by the Chinese government may curb the appetite for commodities, as government officials try to reign-in the surging economy. The Copper market showed little reaction to Tuesday's release of U.S. existing home sales figures for February, which fell by 0.6% last month to a 5.02 million annual rate, but were within analysts' expectations. Traders will now turn their attentions to Wednesday's morning's release of U.S. new home sales for February, with hopes that government tax credits for home buyers that will expire in April have spurred new home sales and hopefully will act as a jumpstart to the building industry. With Copper prices up nearly 2.5 times from the lows made back in December of 2008, the bull market seems a bit long in the tooth, and unless a bullish catalyst can be found soon, the market appears vulnerable for a correction -- especially once traders return from their spring "vacations".
Trading Ideas
With Copper prices caught in a narrow 17-cent range the past few weeks and trading volume beginning to fall, some traders might be lulled to sleep just before the market makes a large move outside the recent price ranges. Some traders may wish position themselves for a breakout of the consolidation by placing a buy stop order above the recent highs of 3.487 and a sell stop order below the recent lows of 3.315. If one side of the trade is filled, some traders may wish to leave the other order working as a protective stop order should the initial breakout of the trading range turn out to be a false signal.
Technicals
Looking at the daily chart for May Copper, we notice prices still holding above both the 20 and 100-day moving averages, giving Copper bulls the upper hand despite the recent consolidation pattern prices have fallen into. Notice that volume has fallen during this range-bound trade, as traders focus their attention to more "exciting" markets such as the Euro or Gold. The most recent Commitment of Traders reports shows large non-commercial traders (large speculators) adding to their net-long positions in Copper, while commercial traders take the other side of the trade. Should Copper prices fail to make new highs soon, we may see some of the speculative long positions begin to get liquidated, as large specs move on to other trading opportunities. The 14-day RSI remains supportive, with a current reading of 55.77. Support is seen at the 3/15/10 lows of 3.3150, with resistance seen at the 3/1/10 highs of 3.4870.
Mike Zarembski, Senior Commodity Analyst
