Copper – Will Bulls Wake Up?
The loss of valuable allies and pro-declining candlestick formation vs. support area.
Will buyers take advantage of the opportunity?
In today’s free article, we take a closer look at the current situation in copper as the bulls approached the area, which could change the very short-term outlook. Have a nice read!
In my last article on copper, published a week ago, you could read the following:
(…) 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.
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.
(…) 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).
Looking at the daily chart from today’s point of view, we see that the situation developed according to the mentioned scenario and copper declined to the next downside target.
Before we focus on the meaning of recent events and their significance for the future fate of the price, let's analyze together what happened on the way to current levels.
On the day of publication of the last comment, the bulls attempted to close the red gap created the day before. Their actions, however, had no effect and after a slight increase after the opening of the session, the price dropped below the opening, which opened the way for the bears to the south.
In the following days, the declines deepened and the copper tested the lower border of the green gap (3.788-3.835), which served as the main support in the short term. Although the buyers pushed the price higher, this improvement was only temporary and the next session brought sharp decline, which resulted not only in a pro-declining formation (the bearish engulfing pattern – marked with the red ellipse), but also in a closure of the gap and a decline below the 50- and 200-day moving averages.
This combination of negative developments resulted in a drop to the next green area created by the Dec. lows and the 50% Fibonacci retracement, which serves as the nearest support.
All the above-mentioned bearish developments remain in the cars, suggesting that recovering lost higher levels won't be easy – especially when we factor the recent volume, which was visibly lower during recent upswings (both white candles were created on a lower volume than the red ones, which emphasizes the involvement of bears in price formation).
Nevertheless, the proximity to the green support zone and the current position of the daily indicators (they slipped to their oversold areas, which suggests that buy signals may be just around the corner) suggests that the space for declines may be limited and reversal in the coming days can’t be ruled out.
Finishing today’s alert please keep in mind that positive scenario will be even more likely if the bulls manage to push the price higher before the end of the week and close it above the green gap marked on the weekly chart.
What could happen if they fail?
The next stop could be the previously broken upper border of the red declining trend channel (marked with red dashed line on the daily chart around 3.72) or the 61.8% Fibonacci retracement (around 3.70) based on the entire Oct-Dec. upward move.
Summing up, the bulls failed to stop their opponents in the previous week, which resulted in a loss of valuable allies (the green gap and two moving averages) and a drop to the next support area. Its proximity with the combination with the current position of the daily indicators suggests that reversal may be just around the corner.
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.