Learn to Trade – Industrial Commodity Overview 25th June
Focus on COMEX Copper futures
The last 2 weeks have seen the COMEX Copper market recover from its 2010 lows. This has been in spite of the recent volatility in risk trades across the board and the continued negative sentiment in Chinese markets.
Thoughts from the trading floor
The technical outlook for the market has become somewhat neutral with a slight short-term bearish bias. The market has continued to show some immediate term strength above the $285.25 to $291.45 base, although the market’s inability to drive significantly away from this base keeps it under pressure in the short-term. A daily up-ward trend at ($291.35 today) is also helping the market to maintain a base. A break of this trend-line followed by a firm close below the 285.25 support area should be the catalyst for another leg lower in the market, providing bears with an ideal opportunity to take a position ahead of the yearly lows at $272.00. A break below here should push the market into a medium term bearish trend. Interestingly, bulls will be encouraged by a potential inverse head and shoulders pattern on the daily time frame. If the market can take out the short-term down-trend line at $306.25, a bullish signal targeting the $340.00 mark will be triggered. Along the way, the market must take out the firm resistance level at $326.75. This inverse head and shoulders in the Copper market would also coincide with one currently forming in the Euro/USD. Thus the catalyst for the drive higher may be a sharp downtrend in the USD.
Quite noticeably, the copper market has been weighed on this last quarter by the weakness in Chinese markets. Fears of over-capacity combined with a sudden contraction of cheap liquidity have hurt Chinese markets over recent weeks. However the last 2/3 weeks has seen the Copper market not reflect the continued strains in those markets. This would suggest that there is a big short-term move imminent in the Copper market as it is clearly being pulled by two strong contrarian forces. The fact that it is lagging the weakness in risk markets tends to suggest an accumulation of long positions and thus a strong ‘snap’ down in other risky asset classes combined with the above discussed technical setup may drive the market sharply lower. On the other hand, the market has shown some resilience to the recent bout of weakness in risk and thus a small abatement of this bearish pressure should see the market gradually drift higher as it looks to build up momentum. This type of price action would favour short positions over the next week looking for the high impact sell-off. As the market will not run-away from the shorts if it rallies, there should be time to cut and reverse positions if the high impact trade doesn’t work out.
Bull View
The bulls will be hoping that the short-term resilience shown over the last 2/3 weeks can continue and a small abatement in risk aversion trades across other risk asset classes will be enough to see the market steadily grind higher.
Bear View
The bears will see the current ongoing trend in risk aversion as an ideal opportunity to enter shorts. They will see the market being close to turning medium term bearish, and that there will be a high impact trading opportunity in the next 2 weeks.
Futex View
We continue to back the bears. With the potential for a high impact short position in the immediate term, we would favour a short-position with a relatively tight stop. However we are willing to reverse the position and go long if the market breaks the daily down-trend at $306.26.
Tags: Bearish, bull, Chinese, Comex, copper, Euro/USD, futex, futures, trading, USD
