September High Grade Copper futures weakened after an attempted upside breakout failed to draw the attention of new buyers. The market did, however, manage to close positive for the session. After falling sharply from the June 5 top at 3.4125, the market has managed to form a compressed support base over the past four days. This is actually healthy since a good base is necessary to reverse the current downtrend.
Fundamentally there are still concerns about demand from China. Traders are concerned that a slowdown in the Chinese economy will lead to a drop in demand for copper. Also weighing on trader sentiment is the money market problems in China. Although a People’s Bank of China official said the central bank is trying to establish reasonable rates, some traders are still approaching the long side with caution. No one wants to get caught by a new wave of fresh selling.
Today’s soft U.S. GDP data may force the Fed to wait before tapering its asset buying program. This could be bullish news because it would pressure the dollar, making copper more attractive to foreign demand.
Technically, the market is in a downtrend, but the current price action suggests a support base may be being built. On Tuesday, the market posted a closing price reversal bottom. If traders can confirm this potentially bullish chart pattern with conviction then look for an acceleration to the upside.
Crossing a downtrending angle at 3.0937 and sustaining the move will be another sign of strength. If shorts begin to cover and bottom-pickers re-emerge, then look for bullish traders to drive this market into the retracement zone at 1.3990 to 3.2494. This is where new short-sellers will be likely waiting.