Dr. Copper is weak and at risk for a downside break, according to Merrill Lynch’s technical team:

Copper futures (aka Dr. Copper) are often used as a proxy for global economic growth expectations. Dr. Copper has a weak chart pattern and the risk is for a significant breakdown that would not bode well for global growth expectations. The dominant pattern is a potential three-year head and shoulders top and the right shoulder of this pattern is a developing bearish head and shoulders continuation pattern.

The annotated chart below shows the H&S top forming, and the key question becomes whether or not the neckline breaks . . .

 

Copper futures – daily chart

Source: BofA Merrill Lynch Global Research, Bloomberg

 

 

Source:
Dr. Copper is weak and at risk for a downside break
Stephen Suttmeier
Technical Analysis, 10 August 2012

Category: Commodities, Technical Analysis

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13 Responses to “Dr. Copper’s Head & Shoulders”

  1. Frilton Miedman says:

    I’m no T/A guru here, but isn’t the right and left shoulder supposed to be at the same level for a “proper” H/S pattern?

  2. ScroogeMcDuck says:

    i think dr. bernanke is already on his way with some head and neck support

  3. PeterR says:

    Echoing above comment, sloping H&S patterns are problematic, especially those with an up-sloping baseline, which confirms that the bottom right plunge of the Head in early 2011 did NOT get down to the level of where a horizontal baseline would be (around 260-270 +/-).

    This is actually GOOD news for the bulls, and weakens the entire H&S argument IMO.

    The 2011 low did NOT challenge the 2009-2010 lows, and the current price has a ways to go before it approaches the 2011 low around 305-310 +/- (below the up-sloping base line).

    Maybe HAL has programmed the computers to use sloping H&S patterns as an early warning sign, but a failure at the base line as drawn would be only that — a warning IMO.

    Only a move below 250 would kick in the full alarm bells and whistles to these eyes (dotted red line on the right).

  4. nofoulsontheplayground says:

    I pointed out that H&S top on Copper here back in April. The chart symmetry suggests it could be another 3-months before the neckline is breached (take the price high of the larger formation on the chart and work out left and right in time to see how the formation’s right and left side “mirrors” match up). A breach in November/December would line up better with equity market seasonality.

    Industrial metal prices are always an important part of my analysis.

  5. wally says:

    Cheaper wiring and plumbing would be good for the US housing markets, and it would be nice to see it come out of all that supposedly spec’d stockpiling in China.

  6. kek says:

    The tweakers cannot be happy with this chart.

  7. COTanalytics says:

    Poor correlations among trader categories.
    Highest CORREL COEFF .55
    Therefore rely on LR model which shows strong down trend continuing

    https://docs.google.com/open?id=0B16Nxp5pgJBzZkViMVdRQWgxRTA

  8. ben22 says:

    “I’m no T/A guru here, but isn’t the right and left shoulder supposed to be at the same level for a “proper” H/S pattern?”

    patterns by their very nature are subjective interpretations of price action so what is “proper” is relative, the shoulders have long been considered legit without being at the exact same level, ideally they are simply “close”. This is covered in detail in old texts such as Edwards and Magee as well as by newer technical analysts such as Bulkowski who has been attempting to quantify such patterns for years:

    http://thepatternsite.com/hst.html

    also, specifically noted here about the neckline in H&S tops:

    “Patterns with up-sloping necklines perform better. The Measure Rule figure shows a green up-sloping neckline.”

    Personally I’ve found that one way to get an early jump on H&S patterns is to use the On Balance Volume study. This works particularly well on the S&P cash market on all time frames though I have not quantified any work in this area. Would also just note that this particular chart is several years old but is not being done in log scale.

  9. Frilton Miedman says:

    Peter, I agree on the “HAL” crack, there’s no real way to know what’s real and what’s for sale anymore, between prop desks that can corner futures markets irregardless of real supply/demand in combination with HFT’s that buy and sell 70% of the total market volume, it would not surprise me if algs are able to mimic popular trading chart patterns for the purpose of head-fakes.

    I keep it simple, buy low, sell high, always hedged.

  10. 10x25mm says:

    There are tremendous stockpiles of copper in Asia (notably China) which have been accumulated since 2009 for use as financial collateral. No one knows how much, but estimates run up to a year’s global consumption. This vitiates copper’s role as an economic prognosticator.

    The only certainty is that, if the world economy does tank, copper will collapse violently.

  11. shoshone says:

    Frilton

    a right side rising right shoulder is usually the most violent and powerful HS configuration if and when the next line is broken…they historically have bigger moves, quicker moves and usually out distance the normal H to NL distance count..

  12. shoshone says:

    And it does look like a double HnS in the right shoulder…scary for bulls, and u cant eat cooper…crb index looks bullis and food problems could be the harbinger of what is to come…

  13. dvdpenn says:

    This H&S top has already retraced 60% of the move from the late 2008 lows. I’m always a little leery of topping patterns that make up more than half of the previous advance (compare with the pattern in the 2007-2008 top).