Housing Market Weakness Means Copper’s Heading Down
Thursday, February 1st, 2007
By George Leong, B.Comm. for Profit Confidential
Copper prices took off in 2003 and then accelerated again in 2005, driven by strong economic growth worldwide, a strong housing market in the United States, and China’s insatiable appetite for the metal.
Since early November 2006, copper has been caught in a nasty downtrend after breaking out of a sideways channel between $3.20 and $3.60. The weak housing market in the United States, along with evidence of a pending economic slowdown both in the U.S. and internationally, could continue to reduce the demand for copper and cap any upside rebound.
In the U.S., the housing market is clearly in the doldrums, as evidenced by the trend of weak building permits and housing starts. Higher financing rates and a sense that the housing market will continue to struggle has driven buyers to the sidelines while forcing sellers or speculators to dump investment properties at reduced prices. New housing, a major user of copper for numerous applications including wiring and plumbing, is dead at this time.
In the semiconductor area, mixed growth projections going forward are also putting some pressure on copper prices. Copper is used in integrated circuits, chips, and printed circuit boards. We also find copper in other technology applications, including networking and communications. A move down in technology could help drive down copper prices.
The March 2007 high-grade copper futures contract in the COMEX is bearish at this time. The MACD Oscillator has crossed over to the sell side, and the Relative Strength is weak, which points to further softness in copper as we move forward.
On the chart, look for support at $2.40. A break below could drive copper down to the 14-day 20% RSI at $2.05. On the upside, I expect to continue to see selling pressure at the 20-day and 50-day moving averages of $2.59 and $2.88, respectively.
My feeling is that until we see solid evidence of renewed strength in housing and the economy, copper will not move higher. It just may have more downside risk.
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Tags: precious metals prices, U.S. dollar, U.S. economy, U.S. housing market
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
