Copper

June Copper's breach yesterday of a midpoint support at 3.3963 implies more downside over the near term to 3.2605, its 'D' sibling. The futures can be shorted from current levels or bought with a tight stop-loss at the target, but if you attempt the former you should use the 3.3825 low shown in the chart for 'camouflage'.  This implies taking the first 'X' entry signal on a chart of 5-minute degree or less following an impulsive breach of 3.3825.  We've executed this trade many times in uptrending vehicles, but it's time we started practicing on southbound traffic. _______ Note: The corresponding target for the July contract is 3.2560, and for the external low, 3.2700. _______ UPDATE (July 7, 10:13 a.m. EDT):  The June contract has bounced reflexively off a recent low of 3.2380. It is bearish that the downside target was exceeded by nearly 2 cents, but bulls would take command of the short- to intermediate-term if they can muster a push exceeding May 21's 3.5380 peak.

A seer quoted recently in the Wall Street Journal was predicting a global economic slowdown based on weakness in copper, and although I wouldn't lay odds against the slowdown part of his theory, I see no especially compelling corroboration in high grade's long-term chart. Moreover, if the next thrust pierces the 2.9533 (approximate, since this is actually a continuous chart) midpoint pivot shown, it would be warning copper bears to reef the sails (assuming their paws can handle halyards, jam-cleats and such).

[Back in July, Cam Fitzgerald asserted here in a guest editorial that policymakers would eventually succeed in stabilizing the global financial system, triggering a huge bull market in stocks. He also asserted that commodities and precious metals would not participate in the rally. In the essay below, Cam shouts “I told you so!”  Readers may find themselves disagreeing, however, especially since precious metals have shown signs of life in recent days. RA] “Remember you read this. I am right, and I know it.” Those haughty words were my parting shot when I responded to comments about a guest essay I’d written here in July, “Commodity Bear Says 2012 Election Holds Key.” I had gone out on a limb, expressing my honest opinions that day and the next without a shred of doubt showing under my wrinkled shirt. It was my vision of the future. Commodities were going to fall along with gold, while stocks, particularly blue chips and defensives, would rise sharply in the months ahead. Not satisfied with that prediction, I dug a deeper hole for myself. There would be no QE3, I stated. Commodity speculation had already brought us to the brink of a new recession. Ben Bernanke would not make the mistake of trying that approach again. Instead, I asserted, policy tools would be employed to jump-start the recovery we needed, and this time it would not cost billions to achieve. At the heart of these efforts were the odds that some strategic efforts would pay dividends in improving the electoral chances of the president. I wondered at the time whether I’d regret my boldness. The responses that followed overwhelmingly rejected my theory. The local crowd dumped on me with glee. Mob rules. “Who are you going to position yourself with, Jim Rogers or Cam Fitzgerald?” one

Copper's two-week rise remains a case for the textbooks after this week's pullback.  A rally up to 3.6420 would confirm the elegant daily pattern with a target well above the $4-per-pound level.  In evening trading, the futures have impulsed upward by about seven cents, lending credence to the tentative "C" point.  If the bullish tone persists, traders should watch for small patterns that enable a long-side trade with limited risk.  (Posted by Doug "harry" McLagan.)  Want to learn how to nail swing highs and lows precisely, and to manage trade risk with a simple approach? Click here for information about the upcoming Hidden Pivot Webinar on November 16-17.

Copper is nearing the completion of a textbook pattern that targets 3.8660.  It is interesting that while stocks were catching their breath (until yesterday) amidst their steady climb, Doctor Copper gave back almost all of its October gains during the third week of the month.  But this seems to have been a misdiagnosis, and the good doctor reversed course into a blazing rally.  Being a volatile industrial commodity, the metal was kind enough to retrace its initial up-move by 35%, and the follow-through has resulted in a classic pattern.  The dollar risk involved in shorting 3.8660 will be substantial if the recommended stop at 3.8715 is used.  Alternatively short-sellers can look for a small bearish pattern just below the pivot.  (Posted by Doug "harry" McLagan)

That was quite a move we saw yesterday, but was it the start of a sustained bull phase? Probably not, is my guess. Regardless, it could set up a fine camouflage buying opportunity, since the thrust was impulsive without having gotten past the obvious 9/27 peak at 3.4835 that others may be looking at. We'll wait for the pattern to develop further before we jump in, but if it should play out similar to the one shown, that could yield a low-risk buying opportunity. _______ UPDATE: The futures traced out a pattern unlike the one we'd needed to get aboard with little risk.  The move was impulsive nonetheless, yielding a bullish pattern with a 3.6120 midpoint pivot that we can use as a minimum upside objective for the near term.

Copper has been beaten down so hard that it was overdue for a sharp reaction. The one that has occurred thus far off the recent low near $2.99 looks quite strong, since it has run up nearly 15% so far without correcting on the intraday charts. A further rise of eight cents from these levels would add yet another peak to the impulse leg's conquests and the second 'external" in the series. The actual high lies at 3.4215, and if it is exceeded before the futures effect a b-c correction on this chart, it would suggest there's enough buying power to keep copper buoyant for at least 3-5 weeks, if not longer.

Although there are no compelling starting points for this selloff, we'll use 3.9975, the best of a mediocre lot, to tell us where the futures might turn. My worst-case target is 2.612, subject to a possible midpoint pounce and corroboration at 3.00. The latter number can serve as a minimum downside objective; an upthrust to 3.4950, the price where bulls would regain the upper hand.

From our globetrotting friend Jonathan Auerbach, here's an excerpt from Auerbach & Grayson's latest report: "The resounding reversal in the primary trend of the US Dollar is the cornerstone of a bearish litany of technical evidence which resonates with the ominous plangency of 2008, and strongly reinforces our longstanding belief that significant downside remains for risky assets. Importantly, the resurgence of the US Dollar is not simply a function of the Euro’s failings, but rather a global phenomenon which should provide another significant headwind for equities and dollar denominated commodities if historical economic relationships hold. Finally, our analysis of many of the major macro proxies for risk, including Copper, China (H-shares), and the Australian Dollar, suggests that the selling may just be getting started."   For the full report, click here.