Copper

Copper's rally since mid-June may look impressive on the hourly chart, but take a look at this 'weekly' before you draw the wrong conclusions. To be sure, the bull market begun in the final days of 2008 is very much intact. But a corrective phase now well into its fourth year shows no sign of relenting. If and when that happens, the metal could be headed as high as $6 a pound, but for now it looks like sub-$3.50 prices are here to stay. Would would change my outlook? Very simply, a thrust exceeding the subtle 3.4525 'external' peak recorded on the way down in April 2013.  Copper is nonetheless a bull trade at the moment and would become a screaming spec 'buy' on a pullback from above the minor, 3.3200 peak shown.

When we last looked in on 'Doc Copper', it was to ascertain a 2.7780 target for the composite weekly contract, with a worst-case possibility of 2.4435 if the higher number doesn't hold. The chart shown shows a third possibility -- one at 2.6375 that we should treat as a back-up-the-truck number for purposes of bottom-fishing. Although the futures have been in rally mode for the last two weeks, I seriously doubt they will escape the pull of gravity represented by this constellation of Hidden Pivot supports .  Accordingly, in anticipation of possible opportunities to come, you should set screen alerts that reference the levels I've noted above. _______ UPDATE (April 15): Basis the June contract, I am now projecting more slippage to at least 2.6115.  On the way down, look for tradable bounces near 2.8698; or if any lower, at exactly 2.6685.

In January, when we last looked in on 'Doc Copper' for clues about the health of the global economy, it was in the throes of a two-month rally that I said would go nowhere.  Subsequent developments have borne me out and then some, since the price per pound has declined by nearly 50 cents since then. Clearly, this does not bode well for economic growth, nor for the manufacturing economy of the world's commodity engine, China. My current outlook calls for more slippage to at least $2.78 a pound, basis the continuous contract.  And if that 'hidden' support fails decisively, meaning by more than 2 or 3 cents, there is room for a further drop to $2.44. At that point, the world's economy would probably be in synchronous recession, even if the Dow is trading significantly higher.

'Doc' Copper looks bound for a long slog through purgatory, based on the recent failure of the March contract to push above the 3.4295 'external' peak labeled in the chart. This is chicken-hearted action, and it suggests that the uptrend begun last summer from just above $3 is not destined for anything special, let alone greatness. To the extent that copper is a reliable predictor of economic activity, we might infer that the global economy will remain subdued for the foreseeable future.

Since price trends in copper can yield clues about the direction of the global economy, it's time we revisited this COMEX vehicle.  The weekly chart suggests that there is little upward price pressure, only a gentle easing that seems likely to continue until the March contract reaches the 2.7780 target shown.  The immediate trend is bullish, however, dating back to June, and the futures are therefore a speculative buy on this pullback. If the next pop were to exceed the 3.4525 peak that I've labeled, however, it would suggest that demand, presumably along with economic activity, is picking up and perhaps even breaking out. You should therefore set an alert at 2.7780 to warn of an uptick in commodity prices and economic activity.

Copper  futures, which have a canny way of anticipating the economy's ups and downs, are closing on a crucial resistance (see inset).  The red line, a Hidden Pivot midpoint that should be regarded as a short-sale opportunity, comes in at 3.3838.  However, shorting there would be somewhat riskier than usual, since a print at that level would exceed some prior peaks on the weekly chart, signaling a possible breakout. My hunch is that the red line will be surpassed this week but that the follow-through will be relatively feeble. Whatever the case, price action over the next week or so could have significant implications not only for the economy but for bullion, since no surge in copper prices is likely to occur without a corresponding move in gold and silver. _______ UPDATE (December 17 at 9:54 p.m. EST): Interpolating for the continuous March contract, the red-line pivot comes in at 3.3829, 0.0044 above yesterday's high. _______ UPDATE (January 6): The futures have fallen sharply after double-topping near 3.42. A short was signaled from 3.4160, but it's likely that few bears would have been feeling up to the trade by then.

Copper has been struggling since May to reverse the damage caused by the breach of a long-term midpoint support, to little avail. Now it looks like a fall to the 2.7780 target associated with that Hidden Pivot is all but certain. That's a decline of 12% from these levels, but it wouldn't necessarily mark the end of the bear market begun nearly three years ago.  More likely is a strong (and tradable) bounce from 2.7780, then a resumption of the downtrend to 2.4435, a target derived from sliding point A to a higher peak (A2). ________ UPDATE (November 26 4:10 a.m. EDT): The futures deserve the cautious  benefit of the doubt at the moment, since they've turned from well above the target given above. However, the rally would gain more credibility if bulls are able to pop this vehicle above the two peaks shown -- and the sooner the better.

In the current forum discussion, Cam Fitzgerald focuses on coffee's bear market to provide some lucid insights into the deflationary dynamic at work in the commodity markets. He notes that although the price of coffee beans has collapsed, falling by two-thirds since 2011, Starbucks is still charging the same four bucks for a large latte. This profit-friendly anomaly has held true for many other companies that benefit from a widening spread between commodity prices and end products. It would seem to flout the laws of supply and demand, but Cam says the textbook relationship will reassert itself with a vengeance as consumers become increasingly frugal under the weight of a deepening Great Recession. From a technical standpoint, his theory looks quite solid. The weekly chart (see inset) implies that a pound of coffee currently trading on NYMEX for $1.03 is about to fall by half. If the futures were in fact to achieve the Hidden Pivot target of 53 cents, that would represent an 83% drop from 2011's all-time high of $3.08.  Coffee lovers may have something to look forward to, but they should be careful what they wish for, since the implication of coffee beans selling for 50 cents a pound is that the world by then will be chest-deep in a deflation of falling wages, plummeting asset values and significantly lower corporate profits.

On speculation that a broadening Chinese slowdown could devastate commodity prices, I've reproduced September Copper's weekly chart.  Price action precisely at and around the p midpoint (red line) implies not only that we are using the right pattern to produce an accurate and reliable target at 2.7780, but that the futures have crossed the point of no return on their way down to it. If the global recession is about to deepen, we should see 2.7780 give way within days of first being touched.  However, a strong bounce from very near that number would imply that the world's economy is not necessarily about to deep-six.