Charting Asia

Doctor Copper is looking ill

Rodrigo Garrido | Reuters

It's been called Doctor Copper because the metal is not just fundamental to the creation of electricity, and thus daily life, but because it's long been used as an indicator of global economic health.

And the weekly copper chart, shown here in cents per pound, suggests the world's economic health is not good.

The dominant feature on the chart is the equilateral triangle pattern. This pattern forms where there is a balance of buyers and sellers and no clear direction. It's a pattern of indecision but when the market finally makes a break, the pattern is used to establish the upside or downside targets.

The downtrend trend line in the pattern starts in September 2011. The uptrend line starts October 2011. The result of these two valid but opposite-direction trend lines is the equilateral triangle pattern.

The height of the pattern is measured from the base. This value is then projected downwards from the point at which the price moved below the uptrend line in March 2013. This gives a downside target of $2.50. It took a very long time for the copper price to reach this target and this reflects a slow but steady slowdown in global economic growth.

The equilateral triangle pattern does not, however, help traders understand what will happen when the target is achieved.

In an extreme bear market it is not unusual for the downside projection of the equilateral triangle pattern to be doubled. Apply this to the copper chart and it suggests a second downside target near 150 cents per pound. This is a little above the 2009 low of 140 cents. The 140 cent level was also a resistance level in 2004 and 2005.

The important feature is that the 250 cent level is a weak support level. Below the 250 cent level there are no strong historical support features until the price reaches the 140 cent level. There is nothing therefore to support the price in a sustained move below 250 cents.

Read MoreAfter Glencore shutdown, has copper found a floor?

Investors watch for the future development of consolidation chart patterns near the 250 cent level that could provide a base for a new rally and change to an uptrend.

But any future rally has three major obstacles.

The first obstacle is the strong resistance near 250 cents. The second obstacle is the strength of the downtrend, as shown by the long-term group of moving averages in the Guppy Multiple Moving Average (GMMA) indicator. These are well separated, showing strong selling pressure.

The third obstacle is the recent support band resistance level near 290 cents. A new uptrend will be confirmed when copper is able to stay above the 290 cent level. The chart suggests that the outlook for copper remains bearish. Doctor Copper is, indeed, very ill.