I’ve always used copper as more of a barometer of the overall health of the economy than as a trading vehicle. Several years ago I remember trading it when futures would move a few pennies in a day. Now it's the Wild West moving a nickel to a dime, frequently within a 24-hour period. Also, regarding options pricing, I’ve experienced a lack of movement in options for clients even with the underlying futures moving in the correct direction.
Watch But Don't Buy
What I draw from this is to not trade the metal, but pay close attention to its movement. As seen in the chart above, prices have traded lower the three weeks and five out of the last six weeks after failing to get above their 100-day MA (identified by the dark blue line above). This week prices have penetrated the 50-day MA identified by the light blue line. Moving forward my interpretation is a trade to the trend line in the coming weeks, which represents a further 4% deprecation. Translation…there appears to be weakness globally as economies around the world continue to stagnate. It's worth noting that during previous copper corrections, a number of other commodities also traded lower.
Past performance is not indicative of future results but I do expect further weakness in a number of commodities. To find out my viewpoint on particular commodities read my daily commodity update.
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