Copper bulls and bears should watch the near-term price action closely

• Copper futures sit at an interesting juncture on the charts
• Most signals look bearish, but there’s some hope for bulls
• Fundamental picture comes across as less bearish than a few months ago

COMEX copper is one of the most interesting charts out there right now, providing something for bulls and bears depending on how the near-term price action evolves. Whichever way the price breaks, you get the feeling the move could easily extend, potentially providing decent trade opportunities for those with a little patience.

The daily chart tells the story.

Bears eyeing downside

From a bearish perspective, Thursday’s engulfing candle suggests we may be looking at near-term downside risks, especially with the price breaking through the minor uptrend it had been trading in since early August, rejected at the downtrend established in July.

With waning volumes accompanying the latest bounce, it doesn’t fill you with confidence that copper about to embark on a big leg higher. With RSI also rolling over, it looks heavy on the charts.

Resting on the 200-day moving average, should it break there’s only minor support at $4.0965 standing in the way of a potential retest of $3.92, or potentially the former downtrend around $3.80 that helped spark the bullish breakout to record highs earlier this year.

But there’s something for the bulls

But, before you set your sell orders on a potential break of the 200-day moving average, take a look at horizontal resistance at $4.2235. Is that the neckline of an inverse head a shoulder, putting a bounce off the 200-day moving average higher as a potential catalyst for a topside break?

I don’t know the answer, but it’s there. It explains why the chart is interesting, and why the near-term price action could be potentially important. If other traders see an inverse head and shoulder, we could easily see a push through the 200-day moving average towards $4.3255 or $4.396.

Mixed messaging from fundamentals

Like the price action, the near-term fundamental picture for copper remains highly uncertain. Everyone can see continued weakness in residential construction in China, but copper inventories at the Shanghai Future Exchange have fallen by 75,000 tonnes from June while the Yangshan import premium over LME prices, which is a proxy for Chinese demand, has turned positive again after flipping to negative earlier in the year.

-- Written by David Scutt

Follow David on Twitter @scutty