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Is Copper Tarnished?

12/06/01 11:45:05 AM
by Austin Passamonte

Copper has been in an upswing of late, which may be a good sign for the overall economy.

Security:   PD
Position:   N/A

One early sign of economic turn is the copper market. This leading manufacturer's commodity is an uncanny leading indicator, as are the scrap metal markets as well. Each is vital to consumer goods production and supply means slowing economies while demand is sparked through early growth.

Copper prices recently took off and raised the hopes of cyclical bulls as well. Was it warranted as an economic turnaround call, or merely market noise?

Figure 1: Weekly chart for Copper
Graphic provided by:
Graphic provided by: QCharts.
Some equate the recent up-move to nothing more than massive short covering by Japanese speculators and others. Regardless of the reason, what staying power might the sudden ramp have? Weekly charts show the commodity to be above midline channel support but meeting firm resistance near recent highs.

Stochastic values are also in overbought extreme and making a bearish touch or "kiss" where fast bar (blue) now crosses into slow (red).

Figure 2: Daily chart for Copper.

An expanded look at the same pattern in daily chart duration shows support near 66 cents and then 59 cents if the first fails to hold. With daily chart stochastic values poised for bearish reversal, we should see a pullback to some support level soon.

Figure 3: The weekly chart for Phelps Dodge [PD] (left) compared to the daily chart (right).

Deep cyclical Phelps-Dodge Corporation is a huge user of the raw metal. Commodity-based stocks often lead the underlying in price direction and indeed we see this symbol heading lower before the metal's charts have. Keep an eye on this daily chart wedge: that unfilled gap from 31.50 to 32.50 area is a price-magnet "window" should a downside break occur. Shorts may have a quick play while longs can hedge, place protective stops, sell OTM calls or simply wait for the next dip to buy more.

Copper should continue its trek higher across all charts but neither trees nor tubing grow to the sky. The first test of resistance is usually most painful, and a regroup near support seems most likely before the next assault up these charts may enjoy gleaming success.

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
Address: PO Box 633
Naples, NY 14512
E-mail address:

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Date: 12/11/01Rank: 3Comment: 

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