Base metals generally and copper specifically have remained under pressure during past few weeks, with copper prices down 8 percent from $6,000 per ton. Three-month copper prices are at $5,500 per ton with a low of $5,440 mark hit on December 19, 2016. Volume has been average with 6,304 lots based on data compiled by LME.
The correction in the base metals continues as in our opinion being driven by profit-taking ahead of year-end, but generally we expect the recent bullish move not done yet while good underlying support to be found in near term.
Technically speaking, copper succeeded to break above its bearish channel being in action since 2011, with a sharp move, shifting a resistance to a very strong supportive zone at around $5,400 per ton. This zone tends to stop the declining move due to several technical factors coming below:
Basically, from the technical point of view, the trend line can play a supportive role post price-break-up as this level equivalents some key horizontal dips and highs, obviously shown in the chart above.
As a rule of thumb, impulsive price movements can be targeted with the aid of Fibonacci Extension from sideway moves before the break out as this case was not exceptional and apparently $6,000 target was %4.618 level from where the price started to correct afterwards. Now the %2.618 Fibo Ext is considered to be a strong support again at around $5,400 zone. The 5,400 mark is not only supportive in copper due to mentioned technical levels, it also overlaps the %38.2 Fibonacci Retracement of the move from the low of almost $4.300 to the high hit at $6,000 just few weeks ago.
All previously noted parameters encourage us to assume the recent bearish move as a correction, where in our scenario would end at around $5,400 per ton and if this level holds as valid, the next resistant levels would be $6,300,$6,600 and $7,000 accordingly.
With this outlook in mind, we expect a good potential in copper-based stocks in Iran’s stock market to soar up in 2017 as global copper price seems to have reached to a mid-term bottom.
Contrarily, this scenario would considered as failed, in case a price penetration below $5,097 occurs which means that the recent price action to hit a high has been an irregular correction to the almost 5-year decline. In other words, the odds of having a newer low in action rises in the coming year. But we are still biased to upside as long as the critical $5,000 per ton is held.