Copper Broke Lower As Expected

COPPER TODAY – Further upside capped by DTL off September 2015 high

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By Andy Farida, andy.farida@fastmarkets.com +44 (0)1722 439411
Short term: Down
Medium term: Up
Long term: Down
Resistances:
R1 4889 September high
R2 5032 July high
R3 5091 April high
R4 5131 March high
R5 5358 October 2015 high
Support:
S1 4782 20 DMA
S2 4761 50 DMA
S3 4631 April low
S4 4492 78.6% Fibo Jan low to March high
S5 4483.50 June low
S6 4430 February low
S7 4318 Low so far
Legend:
DMA = Daily moving average

Fibo = Fibonacci retracement level

RSI = Relative strength index

H&S = head-and-shoulder formation

Image

Analysis

  • The zoomed-out daily chart continues to show a very subdued rally that is capped by the DTL off the September 2015 high. This has acted as a strong ceiling, stopping the advance in copper prices beyond the thin red line.
  • Bulls have tried to break above it on numerous occasions and it seems that it will continue to erode. If a break higher materialises, the move will be a very powerful one. But copper prices will be damaged buy a break below the DTL off the January low.
  • The prevailing price structure as well as the technical indicators resemble the set-up of the May sell-off (see daily chart). Should we see a repeat, copper prices could fall – the daily RSI is already treading lower, followed by the weakening stochastic lines.
  • Meanwhile, nearby support comes from the 20 DMA and then the 50 and 100 DMAs.

Macro drivers

With China away on a week-long national holiday, the base metals seem to have stalled and lack the impetus to break higher. As well, better-than-expected economic data out of the US has firmed the dollar, further raising the probability of a rate rise as early as November. An in crease could affect access to cheap finance and raise the cost of financing. Against such as backdrop, base metals might continue to consolidate lower.

Copper’s net long fund position is seeing big shift while money managers grow more confident about being bullish. Fresh buying has outpaced selling at 7,953 lots and 4,628 lots respectively for a rise in the NLFP to 41,995 lots. At the current rate, it has the previous high at 48,190 lots in it sights.

A well-supplied market and readily available secondary material are forcing physical premiums lower in the US. “We have cathode to sell but no one is paying even 5.5 cents,” one US market participant said. In Asia, premiums are unchanged.

Sporadic large inflows to Asian LME-listed warehouses have kept total LME stocks elevated at 359,725 tonnes. Available stocks edged slightly higher to 283,425 tonnes. With no dominant warrant holder, the contango in the c/3s has widened to $21.25 – lending capacity is far more relaxed.

Conclusion

Copper is consolidating again after finding fresh supply from the DTL off the September 2015 high. For bulls to advance, this resistance needs to be broken. Otherwise, there is a risk of a retest of the January low UTL.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

 

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C. Banks Delaying The Inevitable

  • 2015 – 2016 correction was allowed and c. banks react with various stimulus pledges
  • 2016 June post-Brexit correction was short-lived and stopped before the “true” damage has been priced in
  • Our concern is that market was stimulated to the current elevated condition that risk the same inevitable drop
  • It is perhaps c.banks interest has not been met – surprised by the Exit vote and went to panic mode to shore up global equity
  • The simple analogy is to see c.banks as a drunkard dude in the bar-levitating and enjoying the highs but soon going nowhere before the puking begins

Stages of the Global Equity Market

  • Drinking higher (Baby is the market) (Beer is the stimulus)

It has impulsive moves, irrational at times but financial media has found ways to justify the run higher despite knowing whatever it was jabbing was pure BS.

  • Drinking towards one direction

Image result for drunk phase

The market is drunk but it is heading straight for heaven but the fundamental for heading higher means it is not thinking straight after all.

  • Making sense of the inevitable results

After it peaked at its high, the process of going lower takes time.

  • Final stage of a drunkard

Image result for drunk puke

Sometimes, too much of the good stuff given by c.banks have its consequences.

The next worry is as follows:

  • if drinking is no longer fun or working – what other tools does c.banks have?
  • does c.banks have more tools after exposing itself to jump in too quickly during Brexit vote?
  • how will it react if the market pukes?

Disclaimer: NO BABY OR INDIVIDUALS WERE HURT OR DRUNK WHILE WRITING THIS ARTICLE

 

 

Expect The Unexpected – FOMC & BOJ

FOMC

  • Policymakers to remain largely dovish and uncertain on the timeline for a minimal rate hike
  • Confidence remain low and Brexit will be the topic used to suggest that a rate hike is not imminent
  • Optimistically suggest and forecast better numbers ahead – maintain inflation outlook and maintain the status quo that everything is “as awesome as it gets”
  • Perhaps a hawkish remark could turn the market upside down – a September rate hike could trigger market reaction

BOJ

  • Overwhelming expectation of a large stimulus package 10t? 20t or 30t – Further clarification needed
  • Market expects something from the BOJ – otherwise a potential tantrum could happen
  • USD/YEN on the agenda – helicopter money will not happen for now but will be lightly mentioned
  • Revision on inflation and growth target
  • Waiting for lift-off – currency weakness could be their main priority

Gold Monthly

Gold Weekly

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Silver Daily

Gold/Silver Ratio Weekly

Platinum 4 hour

Where are the Yields? Gold Appeal

  • In search of better yield, fund managers and investors are piling on ETF investments
  • Negative yield and negative interest rate posed a big problem
  • US equity market is chugging higher amid TINA (There Is No Alternative) and FOMO buying
  • Against this backdrop, money flow into commodities sector remains healthy – money put to work to generate better return
  • Pre-ECB, FOMC and BOJ – all eyes on additional stimulus measures or rate cut but FOMC could come under pressure to introduce a hike

Gold Monthly

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Gold/Silver Ratio Weekly

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Losing Its Appeal? Gold & Silver

fear greed index

  • US equity is the best out of a bad neighborhood
  • Gold failed to rally higher – priced in Turkey failed coup and Nice terror attack
  • Gold daily posed a bearish double top formation
  • Gold weekly posed a bearish engulfing candle
  • Specs long could use this opportunity to reduce exposure
  • Investors maintain ETF investment – short term supportive
  • Gold/Silver ratio indicate a possible pullback in favour of gold rather than silver
  • Silver broke below $20

Gold Monthly

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Gold/Silver Ratio – Weekly

TBT – Trade Ideas – Yellen Dependent

Here are some trade ideas as we head into Janet Yellen speech and this is valid for the week prior to FOMC meeting.

  1. Buy the pullback to $1223-1233 and aim for $1263 (stops at $1220)
  2. Sell and fade the rally at $1266-1276 and aim for $1226 (stops at $1280)

Please note this is NOT a trading service – just ideas.

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Gold 4 hr

An up to date look at the gyration in prices and exploring potential setups. Please take note this is not a recommendation or trading service. Detailed setup available for specific clientele.