Comex High Grade Copper Price Futures (HG) Technical Analysis – Hedge Funds Buying Has to Continue, or Rally Will Stall

December Comex High Grade Copper futures surged to a multi-year high last week, driven higher by aggressive hedge fund buying and a rally in other industrial metals like aluminum and zinc.

The market faces some headwinds because of worries about China and Fed policy. Chinese policy tightened during the first half of the year, leading bearish traders to expect this move to lead to weaker economic data later this year. Last week, U.S. Federal Reserve policymakers voiced concern over weak U.S. inflation.

Right now the rally is being driven momentum and aggressive fund activity. Furthermore, the supply/demand picture suggests a balanced market so to some, this rally cannot be justified. Most bearish traders, however, feel that if a top is formed and a sell-off begins it will be triggered by weak Chinese economic data.

Basically, in order for this rally to continue, the hedge funds are going to have to continue to buy strength and with the market trading near major long-term highs, this may be difficult, especially if the supply/demand fundamentals don’t show a deficit.

Technical Analysis

The main trend is up according to the weekly swing chart. The market closed in a position to challenge the contract Fibonacci level at $3.0235. This is followed closely by a major top at $3.0625.

If there is selling pressure then the contract 50% level at $2.8250 becomes the primary downside target.

Forecast

This week will be all about momentum. If the upside momentum continues then buyers are going to go after $3.0235 and $3.0625. The rally will extend over $3.0625.

On the downside, there are three lows bunched at $2.8985, $2.8935 and $2.8795. Sell stops are likely hidden below these levels. Therefore, I think they could be the trigger points for an acceleration into a support cluster at $2.8250. This is followed by $2.8025.

Since the main trend is up, value-seekers are likely to come in on a test of $2.8250 to $2.8025.

This is likely to be a tough week for traders. Those who buy strength this close to a major retracement level and a major high have to be worried about a potentially bearish closing price reversal top.

Those who are holding long positions are going to have to be willing to sit through a possible correction into $2.8250 to $2.8025.

Aggressive counter-trend sellers may want to take a shot at shorting this close to major resistance, but the exit has to be fast because we’re not sure how strong the buying will be over $3.0625.