Copper Tells Us Things Are Improving

Alan Penny

26 December 2019

3 min read

  • Copper breaks minor resistance
  • “Golden cross” signals a bullish trend
  • “Risk on” sentiment felt among traders worldwide

While many retail traders ignore the copper market, they do so at their own peril. Copper is considered to be one of the leading indicators by professional traders as to what the overall risk profile of the markets will be. This is easy to understand when you think about the multitude of uses when it comes to copper.

Copper futures show what traders think demand will be in the future, and currently, they are trading the March contract in the futures pits. As the contract goes higher or lower, it shows demand perception, which is based upon economic growth. After all, copper is used in construction, manufacturing, and a whole host of innovative products. In other words, there is a reason why people call it “Dr. Copper”: It tends to give traders a bit of a “heads up” as to how the markets are going to behave in general.

Technical analysis and what it tells us

Copper chart

The first thing that the chart tells us is that the 50 day EMA has recently crossed above the 200 day EMA, which is a very bullish sign known as the “golden cross.” Quite often, longer-term traders will look at these crossovers as a signal to either buy or sell in general when it comes to the contract, regardless of the timeframe. With that in mind, it has decidedly become bullish over the last couple of weeks.

People believe that the global economic picture is going to get better.

Currently, it looks as if the $2.85 level is going to offer a bit of resistance, but underneath at the $2.80 level, there is more than enough support based upon what we have seen over the last couple of weeks. Furthermore, copper looks to be highly supported somewhere near the $2.72 level. Ultimately, this is a market that is trying to break to the upside, showing that people believe the global economic picture is going to get better.

This shows us that traders around the world are becoming much more optimistic when it comes to the US/China trade situation, even though the “Phase 1 deal” hasn’t been signed yet. It does look as if both parties have stated publicly that they are going to do so.

As a result of both sides signing a deal, traders believe that exports coming out of China will pick up over the next several months, so they are starting to price in the idea of greater copper usage.

The bottom line

Even if you don’t trade copper, this shows that there will be more risk appetite out there. It should translate into higher share prices in the stock market, possibly lower yields in the bond markets, and more interest in buying the “riskier currencies”, such as the Australian dollar (a major supplier of not only copper but many other raw materials for China as well). There is a significant amount of built-in resistance from a psychological standpoint at the $3.00 level, but that is an argument to be worried about later on. Ultimately, copper is telling us that a lot of the fears are starting to go to the sidelines.

Written By
Alan Penny

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