Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Chart Of The Day: Copper Price Headed Back To $3?

By (Pinchas Cohen/ 24, 2022 15:35
Chart Of The Day: Copper Price Headed Back To $3?
By (Pinchas Cohen/   |  May 24, 2022 15:35
Saved. See Saved Items.
This article has already been saved in your Saved Items

At time of publication, copper is down 2.5% YTD after hitting a new record high in early March. That might shock investors who stopped following the red metal market after optimism on China's economy just 15 months ago pushed the metal to a decade high of $4.713 in 2021.

However, currently the world's second-largest economy—a significant user of imported copper—seems to be in a tailspin. The Asian nation's economy is contracting, beset by a host of problems including ongoing COVID lockdowns and what many believe to be unprecedented indebtedness.

When copper hit a record just one year ago, many investors dived into the commodity assuming it would be an inflation hedge as they bet on a global economic recovery. Now, of course, the picture is somewhat different.

The metal is down 12.2% since its Mar. 7 all-time high. Worse, copper has dropped about 16% from May 12 low, just a short distance from the -20% mark which would indicate a bear market.

If you think the recent price bounce means copper is now on the rise, take a look at the daily chart.

Copper Daily
Copper Daily

The price has fallen below its 200 DMA. Since that occurred, the moving average itself began falling too. At the same time, the 50 DMA has been dropping toward and is threatening to cross below, the 100 DMA—which is also falling.

The price plunged 9% within a week—for the second time in a row since April. We view the recent rebound as part of a Rising Flag formation.

The initial tumble is the Flag Pole, and the rising congestion is the body of the flag. The assumption of such a crowded rise after a sharp drop is that the recent advance is not a sign of bullishness but rather traders covering shorts after a windfall.

Presumably, the reason the price isn't going up as sharply as it came down is that other traders, who missed out on the last leg down, regret their previous indecision—or wrong decision if they bought—and are now determined not to miss another such opportunity (if they're right).

A downside breakout would demonstrate that supply (of new bears) drowned out the demand (from old bears, covering shorts) and that sellers are willing to find new buyers at lower prices. That move is expected to create a domino effect, which includes a trigger for old bulls to get back in and stop-out stubborn bulls in order to attract more bears.

If the pattern completes, it will imply a target that repeats the Flag Pole's downside from the point of breakout. So, if the breakout occurs at about 4.3000, the minimum expected decline would be 4.3000 (point of breakout) -0.4030 (expected move), with the price heading to 3.8970.

However, if the price does get to that level, it would trigger another trading pattern, visible on the weekly chart.

Copper Weekly
Copper Weekly

Via the broader view, it's clear the Flag Pole penetrated the bottom of a rising channel since the May all-time high. The rising body of the flag is facing resistance from below according to the technical principle that broken support is expected to turn into resistance.

Furthermore, we might also be witnessing the making of a Double Top since the May 2021 high, above whose neckline the price jumped, with the assistance of the 100-Week MA. The 50 WMA is realigning with the bottom of the Rising Channel as both MAs squeeze the price, forcing it to pick a direction. The MACD, RSI, and ROC are all providing sell signals, suggesting the price will follow suit and fall below the neckline to complete the Double Top.

To determine a minimum target, measure the pattern's height at its lowest point, from the 2021 high to the 2022 low, indicating a drop of 8,030 pips. Subtract that from the verge of a breakout: 4.0000 - 0.8030 = 3.1970. That's significantly lower than the flag's minimum target.

However, the lower the target becomes, the more exposed a trader would be to market changes. And even if the price does ultimately get there, it would occur amid ups and downs. Therefore, you must trade according to your temperament, budget, and timing.

Trading Strategies

Conservative traders should wait for the Double Top to complete before risking a short position.

Moderate traders could wait for the flag to complete.

Aggressive traders could short now, counting on the flag's development precisely below the broken rising channel and its expected resistance, provided they accept the higher risk proportionate to the higher potential rewards.

Ultimately, sound money management will determine one's success or failure. Here's a generic example:

Trade Sample – Aggressive Short

  • Entry: $4.3100
  • Stop-Loss: $4.3600
  • Risk: $0.05
  • Target: $4.0600
  • Reward: $0.25
  • Risk-Reward: 1:5
Chart Of The Day: Copper Price Headed Back To $3?

Related Articles

Chart Of The Day: Copper Price Headed Back To $3?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
Sign up with Email