Copper has had a phenomenal rally during last few weeks. Breaching the range-bound caught in, since the beginning of the year, from average $4.400 to $ 5.000 metric tons, rising drastically to peak at $6,000/mt on the London Metal Exchange before easing back last week.
Many have put the president-elect Donald Trump’s infrastructure spend and declining global inventories as the reason for this strength, although, the recent rise had less to do with the election results and much more to do with perceived demand in China as recent PMI figures have shown robust growth during recent months. Due to some speculators, from one hand, the price has possibly supported by short sellers covering their positions, and from the other hand, the bullish momentum has triggered demand from trend-following funds, increasing buying pressure.
What we intend to discover in the rest, is where the prices are heading to and what is next for copper from the technical perspective.
As a big image, Copper has broken above 5 ½ years bearish channel -on a weekly basis- quite heavily which implies more buying pressure might be on the way. As depicted below, the price has advanced above 23.6% fibo retracement from 2011 to 2016 high/low.
The next solid resistant zone as shown on the chart above, appears at 38.2% fibo retracement around $6.500 area which is also the top hit on early May, 2015. Although it’s too soon to judge the trend has reversed, but even if considering the recent upward move as a corrective wave, it doesn’t seem to have done yet.
From the Elliot Wave point of view, clues have shown that the price is currently in wave 3 started from the recent lows on daily chart (depicted below) and is on the way since no signs of weakness has figured out yet on MACD oscillator. The near-term targets of so-called impulsive wave are $6.270 and $6.550, equivalent to 561.8% and 661.8% of wave 1 from the end of wave 2 respectively.
Considering this scenario as true, price is supposed to continue to rise to almost $6.500 before any significant decline as a form of correction.
On the flipside, the primary supportive zone appears at $5.370 level which not only is 261.8% fibo extension of the recent move, but also is the level which was held healthy after the bearish channel was broken followed by a pull back to this area.
Adding to the above, we are biased to upside in near term as well as mid-term and consider any short term decline as buy opportunity as long as the price holds above $5.370 level. In addition, resistances lie at $7.200 and $ 7.800 in case the major so-called resistance at $6.500 level is breached properly.