Copper prices are stalling at this time and are trading sideways. The basis September high-grade copper futures contract on the COMEX trended to a contract peak on May 11 at $3.94 per pound, just below the $4 a pound psychological level. But since then, the September copper has drifted sideways with no sense of direction. In fact, the chart show the formation of a bearish double top on July 12 ($3.77) and August 10 ($3.74), but was unable to break higher on both occasions. Watch if the metal can hold as it has since its contract peak.
There is strong support at the $3 level, which I expect will hold given the current supply-demand imbalance around the world, where the supply surplus is very tight. Strong demand from China and India continues to fuel the appetite for copper.
Given the strong economic growth in China and India, demand should remain robust. China, which has been the major international driver of numerous commodities due to continued strong growth in its economy, is the country to watch for any slowing. Any shock out of China can have a devastating impact on numerous commodity markets including that of copper.
The September 2006 high-grade copper futures contract is moderately bearish at this time as the metal looks for buying support. Yet given the current downtrend, September copper looks technically oversold so we could see some near-term buying support surface.
The Relative Strength is somewhat weak and needs to strengthen in order for a rally to be sustainable. The MACD Oscillator is showing a moderate buy, but it is weakening and may turn to down in the upcoming sessions.
In a commentary I made in early December 2005, I noticed that the MACD was trending lower. Since June 2004, this occurrence has materialized on the chart on two occasions. In each of the previous two occurrences with the MACD, copper traded sideways, but managed to hold. This is what we are seeing at this time.