Learn to Trade Commodity Overview 2nd July
Focus on COMEX Copper futures (Sep’10)
The last week has seen choppy trade in the COMEX Copper market. The drive higher at the end of the week and on Monday was reversed on Tuesday on the back of a 4% down day in Chinese equity markets. However since then the market has stabilised somewhat after holding important support at the $285.55 level.
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 $285.55 to $291.95 base. The market’s inability to drive significantly away from this base keeps it under pressure in the short-term. A break of this supporting base followed by a firm close below the $280.00 handle should be the catalyst for another leg lower, providing bears with an ideal opportunity to take a position ahead of the yearly lows at $274.00. 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 neckline resistance line at $310.75, a bullish signal targeting the $350.00 mark will be triggered. Along the way, the market must take out the firm resistance level at $327.45-$328.10. This inverse head and shoulders in the Copper market would also coincide with one currently in the Euro/USD, which broke yesterday. Thus the catalyst for the drive higher may be a sharp downtrend in the USD.
Quite noticeably, the copper market has remained resilient to the constant downward pressure on equity markets and other risk trades. Aside from the particularly large sell-off seen in Asian equity markets on Tuesday, the Copper market has shown strength suggesting bullish price action. The supporting base that the market has formed around the $285.55 to $291.95 mark has become pivotal for the short-term outlook of the market. This would suggest that the market is priming itself for a drive higher in spite of the current bearish fundamentals. This is also reflected by the “decoupling” seen between the Copper markets and front month Oil. This would suggest that there is a gradual accumulation of longs in the market and should the market start to break down, the move lower would be fairly violent in its nature.
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. They will cite that the short-term technical picture favours their view and look for a break above the $310.75 inverse head and shoulders neckline for a confirmation of their view.
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 opportunities in the next 2 weeks.
Futex View
We have turned short-term bullish this week. Our call for a short position last week, for a high impact down move was successful, however with the ongoing strength above the 285.55 base and the resilience of the market in spite of risk aversion across most other asset classes we have turned short-term bullish above here.
Tags: bear, bull, Commodity, futures, learn to trade, market profile
