The price of copper is starting to break down below the $400.00 level, with the price of the red metal falling to a 16-month trading low, marking a huge 11 percent drop in the metal in just two weeks.
Investors look to copper prices as a bellwether for the global economy. Falling copper demand is a huge proxy for global demand and a valid reason to be worried about a coming financial recession.
Copper prices are just starting to account for the fact that global growth is slowing, this is particularly the case in China, where demand has been slowing due to the various COVID-19 outbreaks.
The reality is that copper, a very popular industrial and commercial metal, is used basically in many construction materials, including electrical wires and water pipes. So, when demand slows, it suggests strongly that growth is contracting.
Strangely, the red metal is often referred to as “Dr. Copper” among traders because of its alleged talent for prognostication regarding what happens to copper prices is a leading indicator for the global economy.
Technical analysis is still pointing towards the $300.00 level as a possible price target if the breakout above $400.00 continues hold. This is something that I have been expecting to happen for some time as the economy weakens.
Sentiment towards copper has been the biggest risk in the market over recent months as the market turned heavily bullish towards the red metal. The herd is thinking that more gains are indeed possible.
According to the ActivTrader platform some 66 percent of traders are bullish towards Copper. With the current bullish sentiment bias towards copper, I believe more short-term downside in the red metal seems the most likely scenario.
Copper Short-term Technical Analysis
The four-hour time frame shows that copper has broken under a large rising wedge pattern after being rejected from $460.00. These types of patterns are known to be bearish reversal patterns.
It is also noteworthy that the $400.00 support level is a big psychological barrier that has been broken, hence we have seen an acceleration and the breakout momentum in the red metal is now to downside.
Copper Medium-term Technical Analysis
The larger picture for copper prices remains extremely bearish due to the presence of a death-cross on the price charts. The 200-day moving average has now crossed over the 50-day moving average.
A sustained break under the lows of last year, around the $400.00 level sets up more downside towards $340.00 and quite possibly the $300.00 level as copper traders target big psychological levels.