Every great party is followed by a hangover; every good rally is followed by a consolidation.
Chart 1. Copper Weekly: Consolidation
Chart courtesy of tradingview.com
Copper was a hit at the end of last year. The price has gained more than 30% at the top of $2.74 from the end of last October. And then the players started to book the profit pushing the price down to the $2.4 area. It’s wise and natural to save such an incredible gain.
I think we all should sit back and wait as there is another drop underway as highlighted by the red down arrow on the chart. The consolidation started at the beginning of last November and still in play within a current range between $2.42 and $2.74. It’s taken 3 months and 4 moves (upside and downside) already and sounds like a real vacation for the market to accumulate fresh energy for further upside run.
I guess we should finish with this drop down and then reverse to the upside again. There are two important levels to watch closely for the buying opportunity highlighted by the blue ellipse. The first one is located at the previous low established during the last week of 2016 when the price touched the broken red trendline at $2.45. The second one sits a little bit lower at the trendline support area (former resistance) at the $2.35 level.
If the price suddenly reverses ahead of those levels and crosses above the current top established at the $2.74 mark, then we should consider it as the end of consolidation and uptrend resumption.
The closest target is located at the area of the 2011-2014 consolidation and the 2015 peak at the $3.00 mark, which is also a strong psychological level as we would change the whole number there.
The invalidation for the bull run is set far below current levels at the October 2016 low at $2.08 level.
Let’s see below if copper’s behavior is mirrored in the Freeport-McMoRan (NYSE:FCX) chart.
Chart 2. Freeport-McMoRan Weekly: Consolidation
Chart courtesy of tradingview.com
As we saw earlier the miners’ shares usually beat the underlying metal’s gains. And so did Freeport-McMoRan (FCX) with an amazing 80% gain for one month as copper scored only (in this situation it’s a proper word) 30%. This stock took out an important upside barrier set at the $14.20 level described in my October post. That level was broken and then retested. Now the price is above it.
Both copper and FCX have bearish red candles for the past week. So the idea described in the copper section could play out with FCX as well. The current range of consolidation is set within the $13.13-$17.06 range. We should closely watch two levels for entering longs as highlighted in the blue ellipse: the first one is set at the previous low at the $13.13 mark; the second one is projected at the touch of the black trendline at the $12.30 mark.
A sharp move above the current top beyond the $17.06 mark would end the consolidation. The nearest target for the upside move is set at the $24 level where the 2015 top was established. The price almost doubles there and would score a tremendous gain.
The invalidation level for this bullish setup is set at the October 2016 low at $9 level.
Intelligent trades!
Aibek Burabayev
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
I think that copper prices are going to see a temporary rise in the near future if Trump's infrastructure spending plans are accompanied by positive market sentiment, but this trend is unlikely to be sustainable in the long term for the following reasons: US demand for copper accounts for only 10% annually; China's demand (as the world's greatest consumer of the commodity) is falling, due to the overall slow down of its economy. Even if supply of the metal is kept low, I don't think the price will break the resistance level of $3. The major downtrend channel is obviously over (there might be one more mini divergence and the price will assume an upward trend until it reaches the resistance level of $3).
As for FCX, it is following in step, but it is unlikely that it will break the resistance level of $24. For those who are not already long on the stock, the best entry points are either the previous low of $13.13 or the touch of the trend line at $12.30. This would be another mini divergence and I expect one more before the price reaches the resistance level.
Good trading!