Copper Questions
Today's Idea
Copper fundamentals are mixed, but may favor the bear camp if miners are able to get back online. The absence of robust Chinese demand may be too bearish of a force for the bull camp to overcome. Technically, Copper is at a fairly important support level of 4.25. Failure to hold this support could result in further long liquidation and fresh shorts entering the market. Due to the lack of Copper option liquidity, some traders may opt to enter the futures market. One must keep in mind that this futures contract is especially volatile and risky. Some traders may wish to consider shorting the May Copper contract on a close below 4.25, with a protective stop at 4.35 and downside objective of 4.05.
Tomorrow, optionsXpress is hosting a webinar presented by one of the most respected commodity analysts in the business. There is still room available for those interested. Mr. Hightower will be presenting his unique view of the inflation scenario for 2011. As we all know, inflation has a major impact on commodity, currency and financial instrument prices, so the material presented is of relevance to all traders, regardless of what product they trade.
Big Events in 2011 That May Enhance Global Inflation Threat:
Presented by David Hightower
Wednesday, April 6, 2011
3:30 pm Eastern Daylight Time
Fundamentals
Copper has performed poorly lately, at a time when other commodities have hit multi-year highs. Traders are now faced with a dilemma after prices have pulled back - will supply or demand drive the market in the near term? On one hand, Chinese demand has slowed considerably, and Japan's economy is at a standstill as the nation recovers from the natural disasters. New home construction in the US is virtually non-existent. All of these factors point to soft demand for the foreseeable future. While the demand side of the equation seems to favor the bear camp, supplies continue to tighten. Copper miners have had their hands full keeping pace with demand. Heavy rains and human error has led to a reduction in Copper production in Chile. Mines fell well behind their first quarter targets, but if they are able to get back to normal operation, demand side fundamentals could win out. If prices do pull back to a large degree, we could see Chinese firms stockpiling once again. On the other hand, a slow descent could result in firms waiting things out.
Technical Notes
The May Copper chart shows prices trading right at the 4.25 support level. Prices are also hovering near the 100-day moving average. A significant breakdown below the 4.25 mark could send prices lower and possibly test the 4.00 mark. The 4.00 level is a critical support level, both technically and psychologically for the Copper market. This was a level that the market had historically tested, but was unable to break through until late last year.
Rob Kurzatkowski, Senior Commodity Analyst
