Commodity Corner

Investors had their eyes keenly trained on New York copper’s $1.50 per lb. level before it broke down last week. On the COMEX exchange, copper teetered above the psychological $1.50 threshold before diving through on Thursday, triggering stop-loss sell orders on the way down. Then on Friday,  shockingly dismal U.S. jobs data shoved copper down to $1.3560 a lb, its lowest point since February 2005.
Copper had at that point lost two-thirds of its value off its record high set in July.
Investors saw March copper as oversold and sent it back above $1.50 on Monday. But some technical analysts caution against celebrating the upswing too soon. They viewed Monday’s advance as a bear market rally and a short-selling opportunity.  “It may be an opportunity to sell short, because the trend is down. It’s certainly overdone, but it had fallen to a significant downside target,” said technical analyst Hans Kashyap, president of Analytics Research Corp in California.
Some participants took advantage of the gains and grabbed short-term profits on Tuesday.
Looking at a monthly chart and using basic technical analysis, Kashyap projected copper’s downside objective in the $1.40 to $1.35 a lb area, precisely where it stopped on Friday.
To find that target, he took a measurement off the 2006 high at $3.99 a lb down to 2007′s low at $2.3980. He explained that for the last two years copper had made several attempts at the $4.0 level, actually flitting above it several times. But the $4.0 resistance level failed repeatedly to definitively give way, despite numerous forecasts earlier this year for $5 or $6 copper.
Though the $1.35 downside target has held since Friday, Kashyap said he would need to see a protracted period above that band to think a bottom had been established.
To think copper had turned a corner, Kashyap said he would need to see it hold above the $1.40 to $1.35 area for several weeks. Though a brief break beneath $1.35 would not be significant.
“To have any confidence in the upside, I would need to see at least a couple of weeks basing and holding that area and then pushing through the next step at the $1.77 area.”
If $1.35 support breaks, and if the current economic downturn persists that may well happen, Kashyap’s next projected downside target lies at $1.0660.
“We could get down to that swing low. But that would be a worst case scenario.”