Copper prices began the current week with a slump, making their way from the level of 9,000 to below 8,700. Yesterday buyers managed to stabilize the situation, and today we see the price’s rebound. However, the growth potential is likely to be limited by the range of 8,900–9,000, where the initiative might be taken by bears again. In the next few days, the most probable scenario is that prices will return to the area of 8,700.
A general deterioration in the global economy put pressure on copper. The latest U.S. economic data increased fears of a recession. If tomorrow’s U.S. labor market statistics for March are worse than expected, it might crush investor’s hopes for a significant rise in copper consumption. At the same time, some sellers from China already offer copper at a discount due to the need for cash, but demand remains rather low.
Analysts at Wolfe Research Timna Tanners believes that it is not the right time to invest in copper. Tanners does not trust the warnings about a sooner deficit in the red metal and declares her skepticism about copper. Tanners considers the metal's supply growth to be undervalued after launching four large copper mines in the near future. This could put additional pressure on copper prices.
Wolfe Research’s representative underlines the excessive fixation of the copper market bulls on the potential rise in demand from the electric-car industry. However, that industry, as Tanners says, consumes less than 10% of copper, while China's construction sector accounts for about 20% of global demand for the metal. That said, the Chinese real estate market is still quite weak.
In case copper prices enter the range of 8,900–9,000, an option with opening short positions looks interesting. The downside targets are the previous local lows near the level of 8,700. The Stochastic indicator keeps moving downward without signaling an oversold state or a soon reversal of the downtrend.
The following trading strategy may be offered:
Sell copper at an upward move to the range of 8,900–9,000. Take profit – 8,700. Stop loss – 9,080.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
