Copper has sold off sharply in the past month (down 15% from the intra-day highs in early October, see FIG 1). With that, the price has broken below its 200 day moving average, and is now close to two key support levels (i.e. the early August, and early September, lows).
That pullback, no doubt, reflects a number of China-related concerns, including (i) the surprise US election result (and the impact of US tariffs on Chinese activity), as well as (ii) the disappointing Chinese stimulus package (announced 8th November). Of note, the government raised the debt ceiling for local governments (to allow them to reduce off-balance sheet debt). The market, though, had expected more (i.e. meaningful fiscal support for the housing sector).
In the near term, those two factors are arguably priced in. Illustrating that, some short-term models have moved lower, and have crossed below their BUY thresholds (e.g. see fig 1b). Copper is therefore technically oversold and, as such, there’s a case for short term (1 – 2 week) bounce, especially given the proximity of key support levels, noted above.
Beyond that time horizon, though, copper remains somewhat vulnerable to the downside. In particular, the market is net LONG (highlighting fuel for further weakness); measured sentiment readings are broadly mid-range (they haven’t yet turned bearish, and therefore aren’t generating a contrarian BUY signal); and China’s balance sheet recession dynamics remain alive and well.
Fig 1: Copper candlestick futures, shown with 50 & 200 day moving averages
Fig 1a: Copper net speculative positioning vs. copper price (US$/lb)
Fig 1b: Short term technical scoring system vs. copper price (US$/lb)
