Chart Of The Day: Copper To Rise On Green Economic Reawakening

Analysts all over the globe are forecasting a super cycle for base metals, including copper. Forecasters are predicting that the prices of the red metal will continue to rally in the short-to-medium term and even over the very long-term.

Even after setting a fresh record, copper is expected to surge further as economies shake off the cobwebs of forced coronavirus lockdowns. The world came to a standstill in order to try and restrict the spread of the virus causing the most severe economic shutdown since the Great Depression. But that means that there is a lot of room for growth.

There is also another factor that may push prices up over the longer-term, maybe even for decades. That is the new industrial revolution.

The current social and political climate is pushing the environmental agenda in order to try and reduce green-house gas emissions and repair some of the damage we have done to the planet. That means significant restructuring across all areas of industry and commerce. This will create a lot of demand for the world’s most important industrial metal—copper.

But in the short-term, we think the upcoming US inflation report may be the catalyst for a breakout and our technical analysis is also pointing to a potential jump in the near future.

Copper Daily

The metal has been trading within a falling wedge pattern—a triangular structure where both trendlines lead in the same direction. In a declining wedge, both lines head downward, while the upper bound falls more rapidly than its lower counterpart.

The psychological driver of this pattern is that the sellers who are driving it lose patience when buyers have sufficient power to keep prices up. When the lower line does not match the upper lines, it denies short-sellers more meaningful gains.

This fails to prompt copper holders to sell and then the downward drivers lose their hope of a profit as quick as the upper boundary promises. So, they cover their shorts, which not only reduces selling pressure but increases buying, pushing the price through the pattern’s top.

The price has been trending within a rising channel since February. The 50 DMA is so perfectly realigned with the channel’s bottom it is difficult to see. The 100 DMA joined the uptrend line since the October low, and the 200 is rising toward the uptrend line since the famous March 2020 bottom.

While it’s true that the MACD is still caught in a bearish cross, after three weeks it might be ready to turn around, as we see that both the RSI and ROC—two differently calculated momentum gauges—have reached their support, an optimum place from where to bounce.

Trading Strategies

Conservative traders should wait for the wedge to complete with an upside breakout, perform a return move that finds support above the pattern, before risking a long position.

Moderate traders would wait for the same breakout and possibly for the pullback for a better entry, if not for added confirmation.

Aggressive traders could either wait for the completion or enter now, provided its reflected in a coherent trade plan that suits their needs. Here’s an example:

Trade Sample

• Entry: 4.5000
• Stop-Loss: 4.4000
• Risk: 0.1000
• Target: 4.8000
• Reward: 0.3000
• Risk:Reward Ratio: 1:3