Copper Technicals – 3.20 holding despite corrective rally

After yesterday’s huge sell off, price recovered significantly, pushing back towards the $3.20 significant support turned resistance. It is worth noting that the rally came in spite of worse news coming out of the block. US Leading Indicators fell to -0.1% vs previous month’s 0.5% and 0.1% expectation. Philly Fed Index came in at 1.3 vs 2.0 previous and 3.0 expected. Initial Jobless claims increased to 352K. We have bad news all around with stocks reacting “normally” – S&P 500 closed at 1,541.61. lowest in a month.

The rally is not exclusive to Copper. Other metals and Oil also experienced the same gains. This lead us to draw the conclusion that the rally could simply be a technical pullback due to the heavy losses suffered previously, and not truly a bullish reversal with fundamental demands rising.

Hourly Chart

From a technical perspective, the rally back towards 3.2 cannot be construed as a bullish reversal as well. Price stayed below 3.2 convincingly, and even though we were able to enter into the descending Kumo, price failed to even push out of the Kumo, instead it got dragged lower by Senkou Span B, with the forward Kumo twisting back lower after threatening to form a bullish twist.

Currently price is trading deep within the Kumo with a chance to test Senkou Span A. Kijuu Sen may still provide some support, which is also the confluence of the interim consolidation found between 3.13 – 3.17 during early US trading session yesterday. Stochastic support the bearish outlook with readings pointing sharply lower after breaking out of the Overbought region.

Daily Chart

Current bullish candle on the daily chart can be interpreted as a retest of Channel Bottom after a bearish breakout has occurred. Should price fail to retest/break Channel Bottom, then the breakout can be confirmed. However, it is important to note that the “test” may last longer than one candle. Should price maintain current levels above 3.09, it is possible that a retest of Channel Bottom will occur by default as the Channel is downward sliding. Hence, traders may need to be more cautious as price has yet to even touch the channel bottom currently, and that may inspire bulls to do it again and again until they succeed. An extension of current breakout is still possible, though conservative traders may want to hold out until new lows have been re-established before committing given all the uncertainty surrounding Commodities right now.

By uncertainty, we mean the propensity for technical rebounds. The fundamentals are very clear – global outlook is bleak and demand for Copper for manufacturing and construction is bound to decreases. However market sentiment is a very fickle being, and as evidently seen yesterday, traders may need to keep a close watch on current market sentiments rather than merely focusing on what rationality tells us. As what Keynes said: Market can stay irrational longer than you can stay solvent. It is important to ensure that all the technical bulls have been drained out before committing heavily.

More Links:
GBP/USD – The 1.5250 Level Remains Key
AUD/USD – Eases Below 1.03 Again with Descending Triangle
EUR/USD – Rallies Above 1.30

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.