The cycle of accumulation and distribution defines cause (building) within a broader mark down phase for copper.
China six interest rate reduction in less than a year, a move that follows 100 bp reduction in the reserve requirement, unexpected revaluation of the yuan and the Fed's decision to postpone 'liftoff', extends a coordinated effort to spur global economic growth and desire to skirt blame for triggering the inevitable global debt crisis.
While coordinated 'stimulus' supports a countertrend rally of commodities foreshadowed by negative concentration discussed months ago, it won't reverse global capital flows regardless of the hype. Copper, an economically-sensitive commodity, has been leading a cyclical downturn in the global economy for months.
Price
A negative long-term trend oscillator (LTCO) defines a down impulse from 32.29 to 27.53 since the first week of June (chart 1). The bears control the trend until reversed by a bullish crossover. Compression, highlighted by white circles, generally anticipates change.
A close above 35.23 jumps the creek and transitions the trend from cause to mark up. A close below 26.71 breaks the ice and returns the trend to mark down.
Copper's trend, a comparison of down (red boxes) versus up (green boxes) impulses, defines an increasingly organized trending market (falling 1TO and 5TO) since 2011. This supports copper as a consistent source of profits for the bears.
Chart 1
Leverage
A negative long-term leverage oscillator (LTLO) defines a down impulse and bull phase since the third week of September (chart 2). The bull phase, a conflicting message from the leadership of leverage and price, tightens risk management for the bears over the short-term (see price).
A diffusion index (DI) of -12% defines moderate Q2 accumulation following a strong bearish setup in May - yellow circle (chart 3). A capitulation index (CAP) of 31% supports this message (chart 4). DI and CAP's trends, broader flows of leverage and sentiment from extreme distribution (red dotted line) to accumulation and extreme complacency (red dotted line) to fear supporting the bears (green arrows), should not only continue to extreme concentrations but also restrain upside expectations until reversed (see price). In other words, the broader leverage flows advise caution for the bulls.
Chart 2
Chart 3
Chart 4
Time/Cycle
The 5-year seasonal cycle defines weakness until the fourth week of November (chart 5). This path of least resistance restrains upside expectations (see price). Copper's next big decline, a return to mark down, is likely in 2016.
Chart 5