Copper – Moment of Truth

The bulls showed weakness, which resulted in several pro-bearish technical factors.

Is there anything that can save them?

Copper – Moment of Truth - Image 1

Let’s start todays analyze with the medium-term chart and the quote from Oil Trading Alert posted on Dec. 29, 2023:

(…) the price extended earlier upward move and climbed to a fresh multi-month high of 3.974 earlier this week, but will we see further improvement?

If we take a closer look at this chart, we can see a couple of worrying factors that could interfere with the bulls' pro-growth plans. (…)

Firstly, copper moved to the resistance area created by the June and July peaks (3.967-4.024).

Secondly, the volume that accompanied recent increases was falling week by week, which definitely doesn't confirm the strength of the bulls.

Thirdly, the CCI and the Stochastic Oscillator moved to their overbought areas, increasing the probability of sell signals in the coming week(s). Although this is not yet a very negative sign, we must remember that such high readings of indicators we could observe at the beginning of this year. What happened then? In the same month, a multi-month correction of previous increases began, which raises the risk that we may see a similar situation at the beginning of next year (as history likes to repeat itself).

Looking at the chart, we see that the situation developed in tune with the pro-bearish scenario and copper moved lower as expected. The combination of all the above-mentioned factors encouraged the sellers to act, which triggered a decline that took the commodity to the 50-week moving average and the green gap (3.789-3.829) created at the end of November.

What’s next?

Before we find the answer to this question, let's recall the short-term situation from a week ago and then examine the daily chart in search of valuable clues about the next move of market participants.

Copper – Moment of Truth - Image 2

Last Friday, you could read the following:

(…) an invalidation of the earlier breakout above the Dec. 1st peak of 3.933 and the 50% Fibonacci retracement (…) during yesterday’s session, (…) doesn’t bode well for further improvement.

Additionally, copper moved to the area of a huge bearish engulfing candlestick pattern formed on Aug. 1st (marked with the black eclipse), which serves as very important resistance (and reinforces the strength of the 61.8% Fibonacci retracement).

What does it mean?

In my opinion, (…) the combination of these two factors will likely encourage the bears to attack. This scenario is additionally supported by the current situation in the indicators.

(…) there are negative divergences between the price and all marked indicators, which increases the probability that reversal may be just around the corner. Additionally, the CCI and the Stochastic Oscillator moved to their overbought areas and the latter indicator already generated a sell signal.

How low could copper go?

In my opinion, the first downside target for the sellers would be the green dashed rising support line (currently at around 3.875), but if it is broken, the bears will likely test Dec. 19 low of 3.841 or even the green gap (3.788-3.835) formed on Dec. 14, which is also reinforced by the major support seen on the weekly chart – the gap (3.789-3.829) formed at the end of the previous month, which was strong enough to stop declines at the beginning of the month.

From today’s point of view, we see that the green dashed rising support line didn’t manage to stop the sellers, and Tuesday’s daily closure took place under this support. This show of the bulls’ weakness encouraged their opponents to act and resulted in a red gap (3.872-3.881) at the beginning of the next session.

Although the buyers tried to close it, they failed quickly, which translated into another downswing that pushed the price to our next downside target – the Dec. 14 low and the green gap (3.788-3.835) formed that day.

The volume, which was accompanied by recent declines was increasing from session to session confirming the sellers' involvement in shaping the next red bearish candles. Additionally, the CCI and the Stochastic Oscillator generated sell signal, giving the bears even more reasons to act in the following days.

If this is the case and the commodity extends losses from here, the first downside target for the sellers would be around 3,80, where the 38.2% Fibonacci retracement (based on the entire October-December upward move) and the 200-day moving average currently are.

Copper – Moment of Truth - Image 3

Slightly below these supports is also the lower border of the green gap formed on Dec.14 (3.788-3.835) and the gap (3.789-3.829) formed at the end of November (marked on the weekly chart), which together serve as the major short-term support, which was strong enough to stop declines in December.

Therefore, in my opinion, as long as this key area holds the way to the downside is not as wide open as it may seem at first glance and reversal can’t be ruled out (even if the sellers may want to try the bulls’ strength and involvement in this zone first). If this is the case and copper moves higher – the first upside target would be the red gap formed yesterday. If it is closed, we’ll likely see a test of the previously broken green dashed line.

However, before we move on to the summary, let's consider the pro-declining scenario. What could happen if the bears manage to close both green price gaps?

It would be a strong bearish signal, which will likely open the way to the 50% Fibonacci retracement (around 3.75) and the early December lows (at around 3.731).

Summing up, copper reversed and declined during the last week, which resulted in two red price gaps and a breakdown under the short-term green dashed support line. Thanks to this price action, the commodity slipped to the key support area, which will most likely determine the future fate of the price. If the bulls show strength and manage to hold it, we’ll likely see an attempt to erase pro-bearish technical signals. However, if they fail, the way to lower values of the commodity would be open and we’ll see a realization of the pro-bearish scenario in the coming week.

If you’d like to know what the current technical picture of crude oil is or to find out what arguments the bulls have or what allies do the bears have, I encourage you to subscribe to Oil Trading Alerts, where you’ll find the answers to these (and many other) questions.

See you tomorrow.

Anna Radomska