Copper has an impressive potential for correction

Copper prices continue to gradually roll back down from the January’s local highs. Considering the scale of the past growth wave, the potential adjustment is much bigger than the current decrease. In terms of the fundamental point of view, optimism about copper prices was somewhat lowered.

According to a poll by Reuters, more than 30 analysts believe the copper prices will fall to $8250 per ton in the second quarter of 2023, but by the end of the year it may recover to $8750. Strategists at Saxo Bank believe that growth of copper demand in China will show a significant recovery not earlier than in the second quarter of this year.

Experts agree that China's economic recovery is favorable for copper. However, many experts share Capital Economics analysts' concerns about the speed and extent of demand recovery. Caixin PMI data released earlier this week confirm a prolonged difficulty in business growth for many private enterprises in China.

Copper futures rose nearly 20% between early November and late January. That exposes metal prices to the risk of a significant pullback if demand doesn't rise soon, said Jiang Hang, head of trading at Yonggang Resource Co. "We are cautious about copper, which many market participants have previously had high hopes for," Jiang said, citing rising domestic inventories and still low industrial production growth.

The main target for the bears in the copper market is to close the gap at 8600, which was formed in early January. Most likely, we will see attempts to reach that level in the coming weeks, but for now it would be better to focus on targets of 9020 and 8930. The RSI indicator is pointed down, but it is still far from being oversold, not preventing the further pullback.

The following version of trading strategy might be offered:

Sell copper in the range of 9100-9150. Take profit 1 – 9020. Take profit 2 – 8930. Stop loss – 9250.

Traders may also use Trailing stop instead of a fixed Stop loss at their convenience.