Market News & Analysis
Update: Dr. Copper is Sick
Joe Perry February 6, 2020 7:35 PM
On January 28th, I wrote an article titled “Dr. Copper is Sick”. On that date, the price of copper was down 9 days in a row, from a high of 2.88 on January 16th to the low on January 28th at 2.576. We discussed how the RSI was diverging from price on the 240-minute timeframe, however cautioned that when a new variable such as the coronavirus is entered into price discovery, one cannot rely on technicals alone to help determine where price may be headed next. We also talked about how there may be stops below 2.50.
Price continued lower for 4 more days, 13 straight days in total, while hunting for stops below 2.50. The low on the Monday was 2.487. Price bounced with risk on Tuesday and Wednesday and is currently trading near horizontal resistance just below 2.618. The RSI has unwound and is currently trading back in neutral territory.
Source: Tradingview, City Index
Is this just a dead cat bounce in copper or is there something more to it? This answer will be tied to how much demand will continue to be lost due to the spread of the coronavirus. Economists are estimating up to 2% could be knocked off China’s Q1 GDP. If the virus is contained and a vaccine is developed, copper will bounce relatively quickly. Technicals will come back into play when that happens. If price is not able to bounce above the 38.2% Fibonacci retracement level from January 16th to Monday’s lows at 2.638, then this can be considered a dead cat bounce and price may resume lower. Overnight, price traded to the horizontal resistance at 2.618 and quickly reversed.
Source: Tradingview, City Index
If price trades lower in the US session, it would form a shooting start candlestick, which is a reversal candle. Prices may resume the move lower. Resistance levels to watch above the 38.2% retracement level are the 50% and the 61.8 retracement levels at 2.638 and 2.685 levels, respectively. Above that is horizontal resistance just above 2.75. There is some horizontal support which could be tested today near 2.55, however larger support comes on at the previous lows of 2.486.
China wants all possible cases of the coronavirus tested by Friday so that it can reopen factories on Monday. If that happens, we should get a better idea next week of how well the virus is being contained.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.