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TECHNICAL ANALYSIS


Rounding Out Recovery?

10/14/09 09:18:31 AM
by Austin Passamonte

Here's a short-term to near-term view of the high-grade copper futures market.

Security:   Copper Futures (HG)
Position:   N/A

There are several market "tells" that forecast economic upturns and downturns — currency markets, shipping and transport data, sector manufacturing, and so forth. Another important barometer is the copper market. This base metal is at the center of practically all electronics and other industrial manufacturing. Growing economies demand copper, while contracting economies do not.

FIGURE 1: COPPER FUTURES, WEEKLY
Graphic provided by: TradeStation.
 
Of course, the supply-demand dynamics are not that simple. Mining, production, and storage of accumulated copper also plays a role in price behavior. That said, we can follow the path of global recession from peak copper prices near $4/lb. last year to lows beneath $2/lb. this year. A 1-2-3 lift from there projects to the $3 mark as first major objective in price recovery for copper (Figure 1). That's also plus or minus a 50% retracement from swing highs to lows. First test of that zone was met with (expected) rejection...

FIGURE 2: COPPER FUTURES, DAILY
Graphic provided by: TradeStation.
 
... which has since formed a two-month rounding-top pattern. Following the most recent break slightly lower, a lower-high wedge is forming now. If they take off upside and take out $3 resistance zone, it is just a garden-variety pullback beneath key congestion. But if they roll over from and break below recent double-bottom lows near 2.65, the next targets are 2.40s and then 2.00 again. See Figure 2.

HG 2.65 to 3.00 has been the range of consolidation since early August. Lots of subtle effects can affect copper prices. But the big picture is manufacturing and demand, or the lack thereof. If we see this metal on the rise, that does likewise for world demand for durable goods. If instead prices retreat to recent low levels again, it means demand for raw material from ore and scrap sources reflecting lack of demand for consumer staples.

HG copper futures are an excellent market to swing = position trade outright and/or watch for pending signs of global economic expansion & contraction.



Austin Passamonte

Austin is a private trader who trades emini stock index futures intraday. He currently trades various futures markets from home in addition to managing a trader's educational forum

Title: Individual Trader
Company: CoiledMarkets.com
Address: PO Box 633
Naples, NY 14512
Website: coiledmarkets.com/blog
E-mail address: austinp44@yahoo.com

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Date: 10/15/09Rank: 4Comment: 
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