As global markets return to business after the summer recess, and commodity markets attempt to find some much needed traction, the story for copper is very different as it continues to remain range bound and waterlogged across all the slower time frames. The key issue here is fundamental and of over supply driving prices ever lower. Over the last few years the number of newly commissioned mines has increased dramatically with this supply now arriving on the market, and with relatively low demand at present this is simply reflecting the traditional supply and demand relationship of price discovery. Since the middle of last month the stocks of copper in the London Metals Exchange warehouses have increased by over 10,000 tonnes to almost 330,000 tonnes – an increase in inventory of almost 58%.
From a technical perspective the daily chart reflects the heavily bearish sentiment for copper at present, with eight consecutive attempts to rally all having failed and closing each day’s trading session with a narrow body and wick to the top of the candle. The $2.1000/lb area has been tested repeatedly and in the last few days, the volume point of control ( the yellow line) has moved to the $2.0800/lb area. This pattern of price behavior is being repeated once again in early trading, and with US markets closed for the Labor Day holiday, the metal looks set to repeat this pattern once again. Resistance overhead is now deeply developed in the 2.1379 area, with a potential support platform building in the $2.017lb region as volumes build around this area of price agreement. Should we see this level breached, the next area awaits in the $2.0470/lb area and denoted by the blue dotted line. This is a strong region of accumulation, and may well offer some support, as indeed it did back mid June. In the meantime, the trend monitor indicator continues to remain firmly bearish, and with very little evidence of buying volumes here, and over supply dominating in a weak economic framework, the outlook for copper looks bleak.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading