Chartists say base metals in bear market rally, for now

March 25, 2009

After the Federal Reserve said last week it would buy about $1 trillion of long-term U.S. debt, copper rallied to price levels seen in November.  Other base metals followed higher. 


Technical analysts at RBC Capital Markets referred to current metal action as “jobbers markets and not trends,” warning bulls “to beware of getting married to their positions in these choppy and uncertain times.” Others chartists said they were looking for confirmation of the price rally from demand indicators and would not recommend buying metals until the had clearly turned bullish.

The only analyst I spoke with willing to set specific upside targets was Barclays Capital technical strategist MacNeil Curry. He thinks London Metal Exchange copper can reach $4,300 to $4,500 a tonne, with possible scope above $5,000 a tonne. Specifically, Curry said he sees initial targets at $4,366 to $4,547 a tonne. He called short-term support at a trendline and recent low of $3,725 and $3,671. A move below that area would signal a bigger decline than previously forecast.

While LME aluminum has come off a two-month peak, it was trading in a new higher range above $1,400 a tonne. Curry said, “the path of least resistance is still clearly higher given the bullish divergences and weekly momentum indicators and given the strength in other commodity metals.”

A definitive break above that level would add to evidence that aluminum had completed an eight-month downtrend, the Barclays analyst said.

Curry sees zinc, currently trading at $1,280 a tonne, getting dragged higher. But it would need to break above January 7 high at $1,365 to really take off. A breakout puts in sight the 200-day moving average at $1,445 a tonne.

“I think it’s going higher with copper, but it may take awhile,” he said.


The piece is correct. I noted in Daily wealth’s Privy portion that a major move in copper price is due to China’s State Reserves Bureau purchases. Interestingly, the same Daily wealth March 26 issue also posited on copper (being a major indicator of global activity) as breaking out of the $1.60 level upwards. The Barclays analyst specified a $4300-4500/tonne range ($1.95-2.00/lb). If these are really movements up due to resumption of activity, the recession may start easing up. Otherwise, if it is simply a Chinese buildup of strategic stockpile then the signals would be misread.


I agree with this piece as well. My hope is that there will be an easing in market volatility, but I don’t see that happening. Trends will be highly scrutinized by the market conditions.

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