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Copper remains in an uptrend despite a reversal

Claudiu Cazacu from X-Trade Brokers, XTB at 12/11/09


A rising trend on the copper market is just about to celebrate its first birthday. The price of this industrial metal is moving up since late December 2008. The copper bottomed out at 2775 USD per ton nearly three months before stock markets hit their lows. At that level, the price didn’t cover the production costs at most sites which signaled overselling in reaction to the Lehman crisis. For that matter, copper was among the first markets to signal a global bottoming out. While it doesn’t necessarily need to work the other way round, one could at least have a look if the metal signals overheating.

A glance at inventories level is alarmimg. The London Metals Exchange (LME) inventories hit a high above 500.000 tons at the beginning of 2009, then decreased until July, spurring a rally in pricesSince July inventories added 200.000 tons, while the price continued to rise. The increase would be larger if not for the solid demand from Asia. As recently as today the data from China showed that November copper imports rose 10.3 percent from the previous month. Nevertheless, any sign of exhaustion in the global recovery may be the trigger for the reversal on the copper market.

From a technical perspective, copper is on a very well established, rather mature uptrend and a recent decreases in prices should be treated as a correction. . However, a clear breakdown of the the trend line (which now stands, on the hourly chart, at around 6643) will lead to considerable downward potential.

In the short term, copper slipped under the range between 6782 and 6847 for just two hourly candlesticks but then recovered strongly. New data from China as well as recovering equity markets pushed the copper upwards back into the previous range, and possibly towards the resistance line that now stands at 6970. In the medium term, however, it is worth to keep an eye on the trend line, as a breakdown would offer very interesting trading opportunities.

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