A short-term versus long-term analysis of copper prices. Both suggest conflicting outlooks, but there is no reason why both cannot prove true. Here is why.
In today's commodities piece, we will focus on copper prices. The commodity metal had a tough 2013, collapsing from start of the year highs just shy of 3.800 to June lows below 3.000. The remainder of last year saw copper recuperate some if its value loss, but could not breach 3.400, a level from which it has ranged up to, and down from, for the past seven months. What can traders expect from copper's price both on a short and medium term basis? To gain some insight, let's look at a couple of charts.
First, take a look at the four hour chart above. After a period of consolidation throughout the middle of January, the price of copper broke to the downside and dropped from around 3.350 to February 3 lows around 3.17. From these lows, price bounced somewhat and broke through the 50 period moving average to reach previous resistance at 3.230-3.250. Both the 200 and the 50 period moving averages are sloping downwards, suggesting the downside momentum could still drive the price of copper down. If resistance holds, expect an initial decline to the 3.200-3.209 range. Beyond this, the 3.175-3.180 range should offer a degree of support. Further supporting this downside bias is the commodity channel index (CCI) indicator. The CCI indicator can help traders to determine points at which an asset might be overbought or oversold. Many traders use the CCI indicator crossing below the 100 level as a sell signal. A look at the CCI on four hour copper chart shows the indicator giving this sell signal over the last two periods.
Having said this, if the bullish momentum remains with copper, the key level to watch will be 3.250. If price can close above this level, expect a relatively clean run up towards the 3.285-3.300 flat range.
A look at the longer-term, weekly chart above suggests the latter of these two scenarios, the upside bias might be the more likely. From the aforementioned lows below 3.000 during June last year, copper prices have formed an ascending triangle, with an upwards sloping lower trendline and a topline resistance around 3.400. An ascending triangle suggests demand for an asset is increasing and, after a sustained downtrend, can indicate a potential upside reversal. The price of copper reached the lower trendline at the end of last week, which held strong and contributed to this week's bounce. If the pattern remains strong, expect the rise to continue over the next few months towards the 3.400 resistance. If you are trading to the upside, bear in mind there will likely be some resistance around the 3.300 flat level. Not only is this a psychologically relevant price, it also falls in confluence with the 38.2% Fibonacci retracement of last year's decline. If it reaches this area, copper's price may well correct back down to the lower support of the triangle before regaining its upside momentum. The key level to watch in a bullish scenario will be the aforementioned 3.400 resistance. If copper prices break and close above this level, the initial target will be the 3.474-3.500 range described by the 61.8% Fibonacci retracement and the historically significant support/resistance.
Looking the other way, if copper price breaks and closes below the triangle support, (around 3.200) expect a resumption of the longer-term downtrend. The initial target in this scenario would be the 3.100 flat level and, beyond that, look to the 3.000-3.058 range for support.
To sum up, the shorter term, four-hour chart suggests there could be a small corrective downside at copper's current price but looking longer term, the chart looks to indicate a longer term upwards move towards 3.400.