Is Dr. Copper Warning of Slower Growth Ahead?
????? Fundamentals
The Copper market often has been said to possess a PhD in economics, because its performance frequently forecasted the strength of the global economy. So if the price action during the past few trading sessions is any indication, we may be looking at some headwinds for any meaningful economic recovery.
Copper futures are now trading near 2-month lows, after having fallen by over 20 cents per pound in just 3 trading sessions. This weak performance was also being mimicked by other commodity markets such as Crude Oil and Platinum that would normally be supported by an improving economic climate. Copper stocks in LME warehouses have also increased, which may be a sign that physical demand is not as strong as previously thought.
The severity of the declines in Copper prices, as well as other industrial commodities, may be a product of a change in investor sentiment, which now seems to be moving away from holding “risk assets”.
This view was reinforced by a rather hawkish tone seen in the minutes of the Federal Reserve’s FOMC meeting in January, which were released on Wednesday. The minutes reveled that some members were favoring a winding down of economic stimulus and bond buying sooner than economic data would dictate. In addition, the Chinese government appears poised and ready to implement policies that should help to dampen rising speculation in the Chinese real estate market.
Speculators were net-sellers in COMEX Copper last week, with the Commitment of Traders report showing a net-decline of nearly 2,200 contracts for the week ending February 12th. Though the recent uptrend appears to have been broken, the sharp decline in prices seems to have moved the market back into an area of support on the daily chart. This may stem further sharp price declines unless economic data continues to point to declining economic growth prospects in the coming months.
???? Technical Notes
Looking at the daily continuation chart for Copper futures, we notice prices falling sharply through the uptrend-line drawn from the November 2012 lows. Prices are now testing the 200-day moving average, which is holding near the 3.5555 price level.
The 14-day RSI is now approaching oversold levels, with a current reading of 32.60. The next support level is seen at the December 20th low of 3.5175, with resistance found at the 20-day moving average, near the 3.8420 area.
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