Technically Speaking, Copper’s a Good Bet
Thursday, March 22nd, 2007
By George Leong, B.Comm. for Profit Confidential
Copper prices have been rebounding since early February after being firmly entrenched in a downward trend. The housing market, a major user of copper for wiring and pipes, continues to be weak. That said, traders are betting that China’s insatiable appetite for copper to fuel its staggering economic boom will offset the housing market. Short-term, the trend is bullish, but whether it is sustainable is unknown.
Taking a look at the price chart, copper looks bullish, suggesting more upside moves ahead in the near term. In trading on the New York Mercantile Exchange’s COMEX division, May high-grade copper continues to look quite bullish and recently broke back above the key $3 a pound level on March 16, 2007.
The near-term technical picture looks extremely bullish as the underlying technical strength is quite strong. The recent breakout from a Rectangle formation between $2.40 and $2.70 was encouraging for those on the long side. The strong breakout at $2.70 had decent volume on the break above the 20-day and 50- day moving averages of $2.8439 and $2.6793, respectively. These represent support levels. The moving averages are trending upwards, which helps confirm the bullish trend. The next target will be the 200-day moving average at $3.0712.
Relative Strength, a key driver of momentum, is currently above neutral around 69%, but it will need to strengthen in order to help support the price appreciation.
The MACD is also in a nice uptrend, exhibiting a moderate buy signal that has been in place since early February when copper began to rebound.
The trend is clearly bullish and established. But you can expect to see some near-term selling pressure due to the extremely overbought condition on the chart.
Sustained strength could see May copper surge past the 200-day moving average to the 14-day 80% RSI at $3.4255 and the 52- week high of $3.6400.