Copper prices haven't managed to consolidate above the 9,000 level so far. Despite reaching the level of 9,080 at some moments, the further bearish resistance led to pullbacks to the initial positions. Yesterday, such trades resulted in a formation of the doji candlestick on the daily chart of copper, which indicates a change of trend. Seeing the bulls' lack of strength, the sellers may take the offensive and bring copper prices back to the downward trend, where they remained until the end of the previous week.
Today’s release of updated readings of the Purchasing managers' index in China became the important piece of news for the copper market. While the PMI for the service sector showed continued rapid growth (the indicator exceeded 58 points for the first time since 2012), the data for the industrial sector were not so optimistic. In said sector, the PMI fell from 52.6 to 51.9, reflecting the persisting difficulties with the recovery of China's manufacturing sector.
China's consumption of natural resources is showing a fairly modest growth, failing to meet the inflated expectations of many market participants, who projected a massive increase in commodity prices at the end of last year. And now the insufficient demand may be confronted with the increasing supply of copper.
So, the Indonesian authorities recommended the local unit of Freeport to take 2.3 million tons of copper concentrate out of the country by the end of May. Indonesia is planning to impose a ban on copper ore exports from June to stimulate domestic processing of raw materials. Thus, the supply of copper in the global market may increase by the end of spring, putting pressure on prices.
Today, the first correction target has been achieved – copper prices has gone down to the level of 8,930. Later it might reach the Fibonacci levels of 38.2% (8,830) and 50% (8,755). The Stochastic indicator gives a sell signal, increasing the probability of further correction.
The following trading strategy can be suggested:
Sell copper in the 8,900-8,950 range. Take profit 1 — 8830. Take profit 2 — 8755. Stop loss — 9030.
Traders may also use a Trailing stop instead of a fixed Stop loss at their convenience.