Copper: Market Top?

By: Guy Lerner | Wed, Feb 3, 2010
Print Email

Copper, the metal with the Ph. D. in economics, has retreated some 12% over the last 4 weeks. Possible causes include: 1) slowing economic growth; 2) withdrawal of stimulus money worldwide especially in China; 3) supply demand imbalances; and 4) bubble dynamics that has seen excessive speculation in the metal.

Now this article courtesy of Bloomberg and Trader Mark at FundMyMutualFund blog: "Copper Market Set For 'Catastrophe', says Threlkeld." David Threlkeld is president of metals trader Resolved, Inc, and apparently he gained notoriety in 1996 by calling the top in copper. He believes that similar dynamics - excessive supply and speculation -- exist in the current copper market that could lead to prices dropping over 50% from the current levels.

Possible? Anything is possible. So let's look at the technical picture to see what is really going on.

Figure 1 is a weekly chart of a continuous copper contract (symbol: @HG.C) stretching back to 1989. The indicator in the lower panel measures the number of negative divergence bars occurring between price and an oscillator that measures that price action. As we have shown many times before (see this link and this link) across multiple markets, a clustering of negative divergence bars implies slowing price momentum. Often, a cluster of negative divergence bars is a technical finding seen at market tops, but it doesn't have to be part of every market top. In any case, we now have a clustering of negative divergence bars, and this technical pattern was also seen at the 1996 top in copper that Mr. Threlkeld references.

Figure 1. Copper/ weekly

Figure 2 is another weekly chart of a continuous copper contract. Key pivot points are designated on the chart by the teal dots within the black dots; normal pivot points are in red and teal. Key pivot points are special pivot points as they are a pivot point low occurring at a time when investor sentiment towards an asset is bearish. Typically, these price levels are an area of strong buying or selling that result in either support or resistance.

Figure 2. Copper/ weekly

The key pivot point at 3.0998 should have been support, but copper broke through this level and this area is now resistance. The next area of support comes in at 2.6299, and this also coincides with a rising trend line. This is about 12% below the current price.

Price dynamics or how price "should" behave would suggest that a bounce should occur. If this were to happen, then one could envision a head and shoulders topping pattern forming on the chart.

In sum, Mr. Threlkeld's "call" seems plausible. Technically, the warning signs are present. It seems likely that if such a scenario plays out, it will be months in the making.



Guy Lerner

Author: Guy Lerner

Guy M. Lerner

Disclaimer: Guy M. Lerner is the editor and founder of The Technical Take blog. His commentary on the financial markets is based upon information thought to be reliable and is not meant as investment advice. Under no circumstances does the information in his columns represent a recommendation to buy or sell stocks. Lerner may on occasion hold positions in the securities mentioned in his columns and on the Web site; in all instances, all positions are fully disclosed at However, their positions may change at anytime. For more information on any of the above, please review The Technical Take's full Terms of Use and Privacy Policy (link below). While Lerner cannot provide investment advice or recommendations, he invites you to send your comments to:

Copyright Notice: Except for making one printed copy of this newsletter or any other materials, files or documents available from, accessible through or published by TheTechnicalTake, LLC for your personal use (or downloading for the same limited purpose), none of these said materials, files and/or documents may be reproduced, republished, rebroadcast or otherwise re-distributed without the prior expressed written permission of Guy M. Lerner.

Copyright © 2004-2012 Guy Lerner

All Images, XHTML Renderings, and Source Code Copyright ©