Technical Analysis: Copper Close to Breakout

If copper can hold current support around $2.50, the metal has a chance at pivoting higher and retesting prior highs, as we noted December 22, 2016.

And that’s exactly what happened.

Given all of the excitement about Donald Trump’s billion dollar infrastructure plans, and a new Democrat plan of the same size, copper caught support and pivoted higher. It’s now retesting a prior high of $2.75.  Should it break above resistance, which it could easily do, we could see a retest of a May 2016 high of $2.767.

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Before long, we could see copper test $2.90 if all goes according to plan.

Aside from infrastructure, uncertainty surrounding the Administration’s impact on the global economy and geopolitical stability has fueled much of the boom, too.  Even worries about supply disruption in Indonesia and Chile are pushing it higher. 

Freeport-McMoRan for example warned that it may need to start cutting output at its Indonesia mine to about 40% of capacity if it fails to get a government export permit. 

"What has been materializing more recently is the issue of supply disruptions in Indonesia and Chile. If we have supply disruptions for both of these mines this would lend some fundamental support to copper prices," said Julius Baer analyst Carsten Menke, as quoted by News.com.au.

That’s just part of the reason hedge funds are so bullish too, more than they’ve ever been.

In fact, according to the Commitment of Traders (COT) data, funds have taken net longs to 91,000 lots, the equivalents of 2.3 billion pounds of copper worth $6 billion.  That easily breaks a previous peak set in mid-2014.

Better yet, according to RBC Capital Markets, as quoted by Barron’s:

“After a small deficit in 2016, we expect the market to be roughly balanced in 2017 and 2018 then move into growing deficits beginning in 2019. Total reported inventories declined by 131,000 tonnes in 2016, but are up 18,861 tonnes thus far in 2017. We forecast a 12,000 tonne surplus in 2017 and a 43,000 tonne deficit in 2018, an essentially balanced market, and we expect inventories to be little changed as a result. We expect inventories to begin to decline meaningfully in 2019 supporting higher prices. We expect a large deficit in 2020 will drive inventories down below critical levels, supporting strong pricing.”

With all of the chaos and excitement, we may be witnessing the start of a big copper boom.

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