In the last four weeks, copper prices have declined over 30 cents dragging prices to their lowest level in 3 and a half months. Prices rose steadily after bottoming in mid-November but in just over 4 weeks those gains were erased. As of this post we are completing 61.8% Fibonacci retracement and penetrating a trend line that has held since August 2012.
I bring this up not so much as a trading opportunity but for traders to recognize that this is a grim development. The name given to this commodity by a number of traders is ?Dr Copper? as it is viewed as an overall barometer of the global economy. With prices shedding 8% in such a short time frame it should serve as a red flag and force investors to question the validity of global growth.
If we see $3.40 penetrated in the coming weeks on this contract this should lead to a further 5-7% decline in my opinion. I find it difficult to imagine much more upside in securities in an environment that copper would decline at this pace. As for a trade I typically do not trade copper for clients because the extreme volatility. Currently I think prices could move 15-20 cents in either direction so I prefer to use copper as a gauge on how I should be positioning clients in other markets.