NEW YORK, Jan 14 (Reuters) – NEW YORK, Jan 14 (Reuters) – Copper’s 12-percent dive so far this week has sliced through key support levels, setting up a deeper slump that some chartists say could test the market’s decade low following the 2008 financial crisis.
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By Marcy Nicholson
This week’s slump, which is so far the biggest since 2011, has knocked copper to its lowest prices in five and a half years, pushing benchmark Comex third-month futures down to $2.4235 per lb and London Metals Exchange to below 5,500 a tonne.
Feeding the selloff was a confluence of fundamental factors such as a new Chinese export tax policy, negative sentiment from the swoon in oil markets and weak global growth. But it intensified as sell-stop orders kicked in at key technical levels.
The spike lower pushed the Comex contract below the 61.8-percent Fibonacci retracement of the rally from the Dec 2008 low at $1.2595 to the Feb 2011 high at $4.6345.
The 2007 low around $2.40, which marked a so-called “V-bottom reversal” was also seen as providing temporary technical support.
The market also broke below trendline support defined by the lows in June 2012, April and June 2013 and again in March 2014, all key points on the copper market’s slow slide. That support was effective at around $5,750 a tonne for LME this week.
“Copper’s in a severe bear market so the path of least resistance is lower. The last 48 hours, fear has dominated the market,” said Adam Sarhan, chief executive of New York-based investment advisory firm Sarhan Capital.
He expects a brief, near-term bounce may be in the works but that U.S. copper futures still have plenty of room to fall back to the December 2008 trough of $1.2595.
“The important support is the December 2008 low. If that goes, ‘goodnight Irene,’ but that’s a long way away.”
Terence Gabriel, technical strategist at IDEA global in New York, says the sharp downward action shows an acceleration of the contract’s prevailing decline, weak momentum and rising volatility.
“There isn’t any indication yet that this bearish trend that’s in place is exhausted yet, but if you look at the monthly chart, there’s a tendency for the market to … collapse very fast and reverse,” he said.
Gabriel said the contract will likely not find support until roughly $2.30, which marks a support line dating back to 2001 on a log-scaling monthly chart, with the next support level around $1.82-$2.05. “The overall backdrop is for falling commodity prices and industrial metals in particular are still bearish,” he said.