The Copper Price: Due For A Fall

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Includes: CPER, CUPM, JJCTF
by: Hedge Insider
Summary

The copper price rose rapidly during 2017; however, this surge led to a very disappointing 2018.

Towards the end of 2018, the copper price entered and maintained space within a fairly steady trading range (approximately $2.55 to $2.80).

I believe the copper price will fall further during 2019, based on my own view of the commodity's long-term historical price action.

By January 2020, I expect copper to fall to similar levels last seen in the period from November 2015 to mid-2016 (around $2.02 to $2.04).

Copper was extremely bullish from November 2016 through December 2017. While it was not all "plain sailing," the copper price was still able to rise about 50% over this short period. The tables turned however, subsequent to December 2017. Copper then became bearish, and most recently the price has been range-bound (for several months in fact).

In this short article I will outline my interpretation of copper's long-term price action, and offer my bearish prediction going forward: that copper will drop back down to the $2.03634 level by January 2020.

To begin with, I present the chart below which provides us with long-term context for copper's price action using monthly candlesticks. The black box draws our attention to the period spanning from the beginning of 2016 through to the present day.

Copper Price Monthly Candlestick Chart (Chart created by the author using TradingView.com charting tools. The same applies to all further charts presented in this article hereafter.)

To me, it appears that the price is forming a long-term Wyckoff Price Cycle model, per the depiction below:

Wyckoff Price Cycle (Image sourced from ForexTrainingGroup.com.)

I have used the same colors of the lines in the Wyckoff Price Cycle model image above to "paint" (with shaded boxes) my own copper price chart. (See below for the result. Once again, monthly candlesticks are used.)

Copper Mark-down Model As you can see, the resemblance of the Wyckoff Price Cycle model is strong. Further, by taking a purely price-action based view, the copper price does seem to be targeting lower levels. My chart below draws attention to some key levels. The large area shaded above the current copper price (the red box) simply illustrates how the copper price has historically struggled to sustain price spikes above 3.00000.

Long-term Copper Price Targets Note the long-term levels of 2.03634 and 1.37990, which are the closing prices for the months of November 2015 and December 2008, respectively. In my opinion, the copper price appears to be heading for 2.03634, and will hit this level by January 2020.

I would concede a failure in this prediction if the price is able to hit 3.00000 at any time during 2019 (unless of course the copper price is able to hit my target price of 2.03634 before).

Additionally, using weekly candlesticks this time, I believe the chart below helps us see the emergent Wyckoff Price Cycle even more clearly.

Copper Price Markdown Phase

The Wyckoff Price Cycle is only a model, and not necessarily something we can test quantitatively. It is admittedly more of an art than a science, but it does provide us with a template for viewing long-term price action and direction. It is a helpful overlay.

Finally, the daily candlestick chart helps us see how the copper price has failed to sustain prices beyond 2.81000.

The chart below indicates this by highlighting the 2.81000 level with a black line. Also, notice the long wicks on the candlesticks of this chart; spikes and "long wicks" indicate resistance (with the price struggling to break the upper limit of its prevailing trading range). This resistance area has been painted using a red-shaded box (above the 2.81000 level).

Key Resistance Level for Copper Price From July 2018 to present, the copper price has indeed been fairly range-bound. The price has evidently found support around the 2.57000 level. What we need to look out for then, is a sustained drop below 2.570000. This should pave the way to my long-term target of 2.03634 (by January 2020).

On the other hand, any sustained move above 2.80000 would serve as a great warning to any traders holding short positions against copper. However, despite copper currently trading in the bottom half of its most recent trading range, I believe the "risk/reward" is still strongly in favor of those taking and holding short positions.

I believe copper has a lot of potential to drop out of its current trading range precipitously. A copper price below the 2.57000 level would help confirm this bearish view. I believe a sustained drop below this level would see the price driving lower; a true "markdown" phase, down to 2.03634 (which would match the monthly closing price of November 2015).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.