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Chart Of The Day: Another Copper Supercyle On The Way?

By Investing.com (Pinchas Cohen/Investing.com)CommoditiesFeb 11, 2021 09:45AM ET
www.investing.com/analysis/chart-of-the-day-another-copper-supercyle-on-the-way-200560040
Chart Of The Day: Another Copper Supercyle On The Way?
By Investing.com (Pinchas Cohen/Investing.com)   |  Feb 11, 2021 09:45AM ET
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Copper is up for the sixth of seven days. It's the longest winning streak for the red metal in seven months, which has hit an 8-year high while adding over 7% of value.

Investment banks have been forecasting a long-term advance for commodities, as Wall Street bets on a robust economic recovery in 2021—after the one expected last year fizzled. Investors hold commodities in their portfolios as a hedge against rising inflation and a weak dollar.

JPMorgan Chase analyst Marko Kolanovic predicts a new supercycle—a very long uptrend—for copper, as the Biden Administration’s green initiative should boost metals in particular which are necessary for renewable energy infrastructure, batteries and electric vehicles.

The combination of rising inflation and vaccine-induced optimism from falling infection rates pushed hedge fund bullish bets on commodities to the highest in a decade. JPMorgan Chase expects a fifth supercycle after the fourth in 100 years peaked in 2008, after a 12-year acceleration.

Economic recovery aided by the most accommodative fiscal and monetary policies in history, compounded by the Democrat’s fight against climate change provide additional reasons for the bullish outlook on metals and other commodities.

All of which is a recipe for copper to begin another supercycle.

Copper Daily
Copper Daily

The red metal's week-long rally blew out a H&S top, turning what would have a been a bearish pattern into a reversal slingshot in the opposite direction amid a short squeeze and triggered longs.

The MACD’s short MA crossed over the long MA, when recent prices sent moving averages back up. The RSI showed that momentum rose higher than expected during the commodity's downtrend, and the more sensitive momentum-based ROC bottomed.

Measuring the narrowest part of the pattern, top to bottom, provides a target of 3.9858, adding the pattern height of 0.2340 to the 3.7340 point of breakout.

Trading Strategy — Long Position Setup

Conservative traders should wait for the price to clear a 3% penetration to 3.8460, while remaining above the 3.7340 for at least three days, to filter out a bull trap, then dip amid profit-taking, to find new demand by the pattern.

Moderate traders would be content with a 2% filter to 3.8086, minimizing the risk of whipsaw, and a return move for a better entry, if not for confirmation of the uptrend.

Aggressive traders, who already received the minimum 1%, 1-day penetration—sufficient for this risk level—may enter a position as soon as they have a plan that addresses both risk and reward. 

Note on contract specs: the price of copper is quoted per pound, while a contract unit is 25,000 pounds. So, the impact of a move is times 25,000 in your account. That means a 1-cent move is worth $250.

Trade Sample

  • Entry: $3.7300
  • Stop-Loss: $3.7000
  • Risk: $0.03
  • Target: $3.9800
  • Reward: $0.25
  • Risk:Reward Ratio: 1:8

Author's Note: This is just a sample. Don’t comment on it because then I'll know you didn’t read the full article, and that doesn’t make you look smart. Don’t take the trade if you didn’t understand the risks. I'm not a fortune teller and can't know which way the market will head next. As well, your budget, timing and temperament will impact the results of your trade. Write a plan that complements them. If you don’t yet know how to do that take small trades, until you acquire the skill to trade appropriately. Happy trading.

Chart Of The Day: Another Copper Supercyle On The Way?
 

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Chart Of The Day: Another Copper Supercyle On The Way?

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Comments (3)
Carl Zimmermann
Carl Zimmermann Feb 14, 2021 10:58AM ET
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How high will it go & when will Copper Peek 3Quarter, in July , like it did in 2008
Nate Johnson
Nate Johnson Feb 11, 2021 6:51PM ET
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Good article. Very informative. Thank you!
Pinchas Cohen
Pinchas Cohen Feb 11, 2021 6:51PM ET
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Thanks, Nate.
Abdelraziq Abuaisha
Abdelraziq Abuaisha Feb 11, 2021 10:14AM ET
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Would you tell readers: why we call copper Dr. copper dear writer?, so they would better understand what it reflects, when it goes up. Especially that your fed chair spoke about low levels of inflation yesterday.
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Pinchas Cohen
Pinchas Cohen Feb 11, 2021 10:14AM ET
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Abdelraziq Abuaisha  Well, experts expect the economy to reopen and recovery. I don't know whether or not Powell lied or said what he believed, and we don't yet know whether it will nor not go into "very deep" inflatiion.
Abdelraziq Abuaisha
Abdelraziq Abuaisha Feb 11, 2021 10:14AM ET
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I don’t know what data these experts rely on, when they come with such conclusions. I do follow solid economic logic when I come up with my conclusions and make investing decisions. If Powell doesn’t know how to read economic macro indicators, then it’s a catastrophe.
Pinchas Cohen
Pinchas Cohen Feb 11, 2021 10:14AM ET
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Abdelraziq Abuaisha , what economic eduatoin and experience do you have?
Abdelraziq Abuaisha
Abdelraziq Abuaisha Feb 11, 2021 10:14AM ET
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I do have an MSc. In development economics, and I’ve been working as forex trader since 2016.
Pinchas Cohen
Pinchas Cohen Feb 11, 2021 10:14AM ET
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Abdelraziq Abuaisha  Now, don't you think that Jerome powell may have more economic experience than you do? But, wait, are you under the impression that Fed decisions are based on Jerome Powell's opinion alone? i hope you know that they don't. Surely, you don't feel comforable claiming that you know better than the Fed membership.
 
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