Two months after copper's worst selloff in more than a year, longs in the so-called red metal are still finding it hard to catch a break.
And both fundamentals and technicals suggest things could get worse for copper bulls, before they get better.
The price of copper has trended mostly lower since June’s 8% tumble, the metal’s worst for a month since March 2020.
The slump came as top consumer, China slowed buying and shrewdly used copper stockpiled from previous imports to force down prices after they reached record highs in May. China imports enormous amounts of the metal for its building and infrastructure needs and pricey copper was beginning to fuel inflation concerns in Beijing.
The bearish sentiment since June has culminated in another steep red tick for copper this week, with futures on New York’s COMEX down 2.6% for the sharpest weekly decline in seven.
Again, China is in the news—this time not so much for price suppression as for new COVID cases which are mushrooming from the Delta variant of the virus.
Saxo Bank commodities expert Ole Hansen said on Thursday that copper has "got forces pulling in opposite directions."
The longer term bullish narrative hasn't changed much ... (but) the market's a bit worried about the Chinese slowdown" in demand, Hansen added.
COMEX copper’s front-month contract, September, closed on Thursday at $4.3480 per lb. It is down 11% from the record high of $4.888 on May 10, although it remains up 24% on the year.
The point to watch is whether the price falls to $4.20, Tom Essaye, founder of Sevens Report Research, said in a note.
Copper has dropped to roughly that level four times since April, and it has promptly rebounded each time, Essaye said, adding:
“A drop below $4.20 would raise concerns about the sustainability of the [economic] recovery.”
So what do copper’s technicals show? How low can it go?
Sunil Kumar Dixit of SK Dixit Charting in Kolktata, India, breaks it down for us.
Charts courtesy of SK Dixit Charting
For COMEX copper’s daily outlook, Dixit has a Stochastic Relative Strength Index reading of 16/14 with a positive overlapping that he said may give “some bounce back from the lows.”
He adds:
“The target will be a return to $4.42 from Friday’s low of $4.3060. If that 100-Day Simple Moving Average is sustained, then copper may retest $4.62 and $4.89.”
“On the flip side, failure to hold above $4.30 may trigger further losses to 200-Day SMA at $4.14 and $3.90.”
On a weekly basis, if copper breaks down further and sustains pricing at below $4.08, “bears will try to establish $4.62 as a secondary top and extend losses to $3.80 or even $3.30.”
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.