Copper Could Take a Hit

Copper prices continue to hold at above $3.50 per pound as global demand remains healthy, though any signs of weakness in demand could send the metal down mercilessly. As we rang in the New Year, the July high-grade copper futures contract on the COMEX was basing at $2 per pound, but then the metal swung upwards and never looked back as global demand for copper remained high.

 With the high price of copper, we are hearing stories of thieves stealing anything with copper in it and then selling it on the black market to metal dealers. We have even heard about thieves stealing copper from wires. The Statue of Liberty has a copper cover so it could be a prime target!

 While the excitement continues, there are some signs on the chart that high-grade copper may be topping. Taking a look at the chart, the July high-grade copper futures broke above resistance at $4 on May 11 to contract high of $4.04 per pound. But since then, the July contract has failed to break $4 and has in fact drifted lower, breaking down to just about $3.25 on May 22 and to $3.34 on June 1. The chart suggests the current hesitation in wanting to bid copper higher given the risk of a potential top.

 The near-term technical picture is neutral to moderately bearish as the Relative Strength has declined marginally below neutral and looks vulnerable to further selling in the near-term. The break below the 20-day moving average of $3.67 is a minor warning flag.

 The reality is, if the global economies slow, copper can take a major hit. The U.S. housing market, a major user of copper, is already showing some fragility and this could drive copper prices down.

 What is keeping prices high is the demand from China, but even so, any negative news could drive copper down over 10% to the 50-day moving average at $3.19.