Copper – Consequences of Bullish Pattern
Pro-bearish gap vs. bullish appetite for higher levels. Who will emerge victorious from this battle?
From the beginning of the week, the price of copper systematically increased until yesterday. What technical factors make buyers take action? What caused Wednesday’s decline? What can we expect in the coming days? You will find answers to these questions in today's article. Have a nice read.
Looking at the weekly chart, we see that although copper pulled back a bit at the beginning of the week, the 50-week moving average (and the proximity to the 200-week moving average) was strong enough to stop the sellers and encourage the bulls to come back to the trading floor in the following day.
As a result, the commodity extended an earlier upward move and tested the upper border of the orange consolidation.
How did this price action affect the daily chart?
Before we analyze the situation together and answer this question, let's recall the technical situation of copper at the time of publication of the previous article:
(…) the commodity gained 2.44% during yesterday’s session and formed huge white candlestick on the chart, which successfully broke not only above the 38.2% Fibonacci retracement, but also above the 50% retracement and closed the day above the 61.8% retracement, which is a bullish development.
Additionally, thanks to yesterday’s move the bulls closed the red gap formed on Jan.3, which suggests further improvement in the coming day(s) – especially when we factor in the volume, which moved sharply higher from session to session, confirming the strength of the buyers and their involvement in the upward move.
How high could copper go?
Taking all the above into account and combining it with the buy signals generated by the daily indicators, I think that the next target for the buyers will be the red gap (3.917-3.925) created on Dec.29, 2023. If it is closed, we’ll likely see a test of late Dec. highs (3.956-3.974) in the following days.
From today’s point of view, we see that the situation developed in accordance with the previous pro-growth scenario and the bulls reached the target mentioned in the last article during yesterday's session.
What technical factors led to this development?
When we take a closer look at the daily chart, we see that although the buyers created a huge white candlestick that broke above the 61.8% Fibonacci retracement in the previous week, the sellers decided to test the strength of the bulls and their determination in the following days.
Thanks to their attack, the price moved back a bit and slipped under the previously broken 50% Fibonacci retracement, approaching the 50-day moving average. Despite this pullback, the buyers did not lose their cool and very quickly launched a counterattack, regaining the lost levels and closing the day above the 61.8% Fibonacci retracement.
This show of strength resulted in a higher open on the following day and pro-growth green gap (3.879-3.885) was formed on Tuesday. The bulls used it to their advantage and pushed copper even higher, closing the session just below the red gap created on Dec.29, 2023.
Yesterday, the commodity jumped even higher and tested the strength of this resistance, but it turned out to be too much for the buyers. As a result, the price reversed and declined, closing the day under the gap and leaving on the chart a red candle with a prolonged upper shadow.
What does it mean?
It proves the increased involvement of bears in this area. Additionally, when you look at the chart, you can see two blue rectangles. Are you wondering why they appeared?
Let’s zoom in on the chart to find out.
From this closer perspective, we see that the recent price action formed a flag pattern on the chart. As a reminder, this is a continuation of a previous trend formation, which has actually worked perfectly on copper in recent days.
As you see, the size of this week’s upward move corresponded to the first part of the formation, achieving a minimum range of movement, which suggests that bulls may want to take profits in this area – especially when we factor in the above-mentioned strong resistance (the red gap) and the current position of the daily indicators.
The CCI and the Stochastic Oscillator moved to their overbought areas, which suggests that reversal may be just around the corner (please keep in mind that even a bit lower reading of the indicators preceded a correction at the end of December).
Additionally, the volume that accompanied yesterday’s drop was visibly higher (the highest since Jan.24 when the mentioned huge white candle was formed), which confirms the bears' commitment and their determination to defend the red gap.
Connecting the dots, in my opinion, the probability of reversal and lower prices in the coming day(s) is very likely.
How low could copper go?
If the bulls do not manage to close the gap, the first target for the sellers would be likely around 3.828-3.840, where the last local bottom and the previously broken 50% Fibonacci retracement are. If these supports are broken, we could see a drop even to the green gap (3.793-3.806) formed on Jan.24.
Summing up, over the last week, bulls pushed the price of copper once again to higher levels, realizing the size of the move based on the above-mentioned bullish flag. Thanks to this increase, the commodity came back to the red gap from late-Dec., which serves as the nearest important resistance. Taking these facts into account and combining them with the current position of the daily indicators and the significant volume that accompanied yesterday’s downswing, it seems that reversal and lower prices of copper are just around the corner.
Meanwhile, based on yesterday’s move in crude oil profits on my current trading positions have just increased. And it looks like they can increase further in the following days. If you’d like to know more and find out what the current technical picture of crude oil is I encourage you to subscribe to Oil Trading Alerts.
See you tomorrow.