Bloomberg News

Copper Rally Intact Above $8,400 to $8,600: Technical Analysis

June 15, 2011

June 15 (Bloomberg) -- Copper’s 2 1/2-year rally remains intact above $8,400 to $8,600 a metric ton because that was the peak of the last bull market, according to technical analysis by Jim Stellakis, an independent analyst.

The attached chart shows prices were capped at about $8,600 from February to July 2008, before falling as recession sapped demand. The rebound that began five months later breached the previous ceiling in December, closing at $9,600 that month. The metal has dropped about 10 percent since reaching a record $10,190 on Feb. 15.

“Interest came back during last month’s drop,” said Stellakis, founder of Technical Alpha, a New York-based research company. “The $8,600-$8,400 area seemed to be a level that sellers controlled for much of 2008. And since those sellers have been cleared out, $8,600-$8,400 should be monthly support after December’s rally.”

Prices tripled since the end of 2008 as mining companies failed to keep pace with demand, creating shortages for a second consecutive year, according to Barclays Capital. Raw-material producers are contending with higher costs for everything from steel to energy to wages while extracting ores that contain ever smaller amounts of metal.

Copper for delivery in three months, a global benchmark, closed at $9,169 on the London Metal Exchange yesterday. Prices may reach $12,000 by Dec. 31, according to Barclays, which is forecasting that production will fall 677,000 tons short of demand, equal to 3.3 percent of consumption.

Technical Strategist

Barclays technical strategist Lynnden Branigan last week said the commodity may drop to $8,670 within two weeks if it completed a so-called bear-flag pattern. It closed at $8,912 on June 13, below the $9,072 level needed to form the indicator where price movements resemble an inverted flag on a pole.

“It’s not unusual for the market to pull back, and the longer term outlook looks fine,” Stellakis said. “The area around the 200-day moving average is acting as support right now. The trend of the 200-day moving average is still up.”

Copper’s 200-day moving average is at $8,964.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. Some analysts and traders use a combination of indicators and levels to form both short- and long-term forecasts.

An “upside bias” will continue as long as the metal remains above the 200-day moving average, Karen Jones, a technical analyst at Commerzbank AG in London, said last week in a report. A failure to hold that level may push prices down to the 55-week moving average, currently at $8,463, she said.

Fibonacci Analysis

Prices may also climb to $9,347 to $9,546, which would be a 50 percent and 61.8 percent retracement of the decline from the record in February. They are levels singled out in so-called Fibonacci analysis.

Fibonacci analysis is based on the theory that prices tend to drop or climb by certain percentages after reaching a high or low. Moving averages can signal directional trends for a security.

Copper’s 14-day relative strength index, a technical indicator of price momentum, is at 53.42. A reading of 30 or less, derived from averaging gains or losses over 14 days, indicates prices may be poised to rise, while a reading of 70 or more signals the opposite.

--With assistance from Agnieszka Troszkiewicz in London. Editors: Sharon Lindores, Dan Weeks

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus