Chart Of The Day: Copper To Rise On Green Economic Reawakening
Investing.com | Jun 09, 2021 09:33
Analysts all over the globe are forecasting a super cycle for base metals, including copper. Forecasters are predicting that the prices of the red metal will continue to rally in the short-to-medium term and even over the very long-term.
Even after setting a fresh record, copper is expected to surge further as economies shake off the cobwebs of forced coronavirus lockdowns. The world came to a standstill in order to try and restrict the spread of the virus causing the most severe economic shutdown since the Great Depression. But that means that there is a lot of room for growth.
There is also another factor that may push prices up over the longer-term, maybe even for decades. That is the new industrial revolution.
The current social and political climate is pushing the environmental agenda in order to try and reduce green-house gas emissions and repair some of the damage we have done to the planet. That means significant restructuring across all areas of industry and commerce. This will create a lot of demand for the world’s most important industrial metal—copper.
But in the short-term, we think the upcoming US inflation report may be the catalyst for a breakout and our technical analysis is also pointing to a potential jump in the near future.
The metal has been trading within a falling wedge pattern—a triangular structure where both trendlines lead in the same direction. In a declining wedge, both lines head downward, while the upper bound falls more rapidly than its lower counterpart.
The psychological driver of this pattern is that the sellers who are driving it lose patience when buyers have sufficient power to keep prices up. When the lower line does not match the upper lines, it denies short-sellers more meaningful gains.
This fails to prompt copper holders to sell and then the downward drivers lose their hope of a profit as quick as the upper boundary promises. So, they cover their shorts, which not only reduces selling pressure but increases buying, pushing the price through the pattern’s top.
The price has been trending within a rising channel since February. The 50 DMA is so perfectly realigned with the channel’s bottom it is difficult to see. The 100 DMA joined the uptrend line since the October low, and the 200 is rising toward the uptrend line since the famous March 2020 bottom.
Get The App
While it’s true that the MACD is still caught in a bearish cross, after three weeks it might be ready to turn around, as we see that both the RSI and ROC—two differently calculated momentum gauges—have reached their support, an optimum place from where to bounce.
h2 Trading Strategies/h2Conservative traders should wait for the wedge to complete with an upside breakout, perform a return move that finds support above the pattern, before risking a long position.
Moderate traders would wait for the same breakout and possibly for the pullback for a better entry, if not for added confirmation.
Aggressive traders could either wait for the completion or enter now, provided its reflected in a coherent trade plan that suits their needs. Here’s an example:
Trade Sample
- Entry: 4.5000
- Stop-Loss: 4.4000
- Risk: 0.1000
- Target: 4.8000
- Reward: 0.3000
- Risk:Reward Ratio: 1:3
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.