Could Copper Show the Way to Recovery?
Could copper show the way to recovery?
The industrial metal has quietly traded down to a tremendous support level. When this market made a breakout move in early September ahead of the U.S. Federal Reserve's third round of quantitative easing, it was out of a wedge at this exact $3.50 level.
(Read More: CNBC Explains Quantitative Easing.)
Every wedge breakout leaves an apex behind and that is what we are seeing here just below $3.50. Furthermore, through the spring and summer $3.50 had acted as a wall, which also now means a supportive level.
Before we move onto the fundamentals, the .618 retracement between the June 4 lows and the September 19 highs is right at $3.48. These technicals scream for a short-term bounce at minimal.
Remember this just a trade, but globally, the demand for copper is rising and in fact, we are witnessing a supply deficit. Economic data out of China and Asia has been encouraging with gains in industrial output, retail sales and fixed-asset investment. I do not expect manufacturing and PMI data tonight to disappoint. Lastly, copper is trading roughly 12 percent from the yearly highs and these levels become very attractive for consumption.
How am I playing this?
Use the $3.49 level in Dec. copper futures as a buying point and give your trade room to breathe my stop is $3.39. You must gauge this trade with the broader market and the currency trade. I expect this to press retracement levels at $3.64 and that's where we are taking profit.
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