Comex High Grade Copper Price Futures (HG) Technical Analysis – Headed to $2.8405 to $2.7605 Value Zone

Copper prices were pounded last week as hedge and commodity fund managers paid the price for building record long positions while ignoring warnings that production shortfalls were “over-hyped”.

December Comex High Grade Copper settled the week at $2.9490, down $0.0925 or -3.04%.

The longest rally in a decade came to a screeching halt the week-ending September 8 with a dramatic closing price reversal top chart pattern. The selling continued last week as a stronger U.S. Dollar encouraged long dollar-denominated copper investors to book profits and pare positions.

Bullish money managers who failed to heed the advice of professional analysts have paid dearly the past two weeks. Even while global copper supplies were tightening, Barclays warned in August that production shortfalls were “over-hyped,” and Goldman Sachs said the metal was about 10 percent above fair value. Even Oscar Landerretche, chairman of top producer Codelco, had said the gains weren’t sustainable.

Over the longer-term, there’s reason for prices to stay this high since the fundamentals are coming in line. However, in the short-run, prices are too high and ripe for a pull-back into a value area. Despite the losses the past two weeks, the correction is actually healthy for the market because it is shaking out many of the weak speculative buyers.

Weekly Technical Analysis

The main trend is up according to the weekly swing chart, however, momentum is trending lower because of the closing price reversal top the week-ending September 8 and last week’s subsequent confirmation.

A trade through $3.1785 will negate the chart pattern and signal a resumption of the uptrend with targets coming in at $3.2245 and $3.2415.

The futures contract’s retracement zone is $2.8250 to $3.0230. The market is currently trading inside this zone.

The main range is $2.5025 to $3.1785. Its retracement zone at $2.8405 to $2.7605 is the primary downside target. Since the main trend is up, watch for a technical bounce on the first test of this zone. This retracement zone is a value area.

Weekly Forecast

Based on last week’s close at $2.9490 and the current downside momentum, look for the prices to continue to weaken into a long-term uptrending angle at $2.8825. Since the main trend is up, watch for a technical bounce on the first test of this angle.

If $2.8825 fails as support then look for the selling to extend into a series of retracement levels at $2.8405, $2.8250 and $2.7605.

On the upside, resistance is a steep downtrending angle at $3.0185 and the major Fibonacci level at $3.0230.

I think this sell-off is healthy and likely to set up a great buying opportunity. The best value area is $2.8405 to $2.7605. The best support cluster is $2.8405 to $2.8250. Look for buyers to show up on a test of these areas.