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Copper eroded its 2021 trading gains last week as fears over a new variant of the COVID-19 virus spreading across the globe, and a potential delay in the rolling out of the proposal $1.9 stimulus package from the Biden administration also weighed on copper prices as the spending bill faced opposition in US Congress.
The red metal had been on price surge towards multi-year highs prior to the pullback, as copper prices rose towards $3.70 within the first week of January 20201. Copper has notably been diverging with the price of the two most popular metals recently, namely gold and silver.
Copper mining stocks also took a big hit last week. Fears about copper prices losing gains, as global slowdown and global demand worries in the first quarter of 2021 weighed on Quantum Mineral and Freeport-McMoRan.
Many analysts are speculating that the copper market will remain tight over the medium-term as new supply will be delayed due to restrictions on the industry from COVID-19, such as suspensions of new and existing mining projects.
In terms of long-term demand for copper, analysts believe that infrastructure from China, Japan, and other developed economies will help underpin demand. Additionally, US economic recovery plans should also support the price of copper.
Something else to watch is speculation. Silver prices are currently rising due to market speculation, and the current Main Street versus Wall Street battle, which began with GameStop continues to rage on. If gold starts to rise alongside silver, speculators may then target copper.
It must be said that copper is more driven by the demand and supply side. China’s economy plays a huge role in determining the price of copper, given the huge amount of infrastructure and development projects the government has been undertaking over recent decades, and continue to do so.
In terms of technicals, copper does look vulnerable to further pullbacks in the near-term. The lower time frame chart in particular shows the prospect for further weakness in the days ahead.
Copper Sentiment Analysis
Market sentiment data on the ActivTrader platform currently shows that some 72 percent of traders are bearish towards copper right now. This should concern bears as potentially too many traders are expecting a price drop.
Something to watch out for is how sentiment is positioned if price starts to drop and then recovers. If retail traders remain negative towards copper when price rises, a major short squeeze could be in the making.
Market sentiment can be a great tool to incorporate into your trading, especially when the crowd is leaning heavily in one direction, and the price is moving in the other direction.
Copper Technical Analysis
Lower time frame analysis shows that a bearish head and shoulders pattern is complete, meaning that copper could be set to drop anytime. Weakness under the $3.50 level is currently required to activated the bearish pattern.
According to the overall size of the pattern, copper could drop by around $0.25 cents, and fall towards the $3.25 level. If the pattern is invalidated, and bulls move price above the $3.75 level, then a short squeeze towards $4.00 could occur.
Source by ActivTrader.
Traders should also note that a large, inverted head and shoulders pattern on the daily time frame has yet to fully play out. According to the overall size of the pattern, a rally towards the $3.90 to $4.00 benchmark level could still be forthcoming.
Source by ActivTrader.
On the daily time frame the 20-day moving average is offering strong support and have been instrumental in holding price dips since November. A loss of the 20-day MA, around the $350.00 area could cause heavy technical selling towards $335.00.
