Copper Base Signals Rise, StanChart Says: Technical Analysis

(Bloomberg) -- Copper may rise to levels not seen since October in the month ahead, as the metal forms a U-shaped base, Standard Chartered Bank said, citing trading patterns. The 50-week momentum indicator continues to turn higher and supports a rising copper market, as does the sustained push above the 13-week moving average, London-based David Barclay, the bank’s commodity strategist, wrote in a report yesterday. The 14-day stochastic indicator and MACD lines are also signaling a “buy,” he said. Copper for delivery in three months on the London Metal Exchange has jumped 45 percent this year, and traded at $4,460 at 8:31 a.m. Singapore time. Copper prices are still struggling to clear resistance at $4,925 a ton, but a climb to $5,156 a ton remains favored over the coming month,” wrote Barclay. This is a 38.2 percent retracement of the fall from the 2008 high, he said, based on a series of numbers known as the Fibonacci sequence. After this, copper may target the 50 percent retracement objective of $5,878 a ton, he added.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break of a so-called ‘level of resistance’ indicates a price may move to the next level, while a failure indicates a trend may stall. Sell orders may be clustered at resistance levels. A long term pullback to the 50-week moving average of $5,247.31 a ton is still expected on this bull cycle, said Barclay. Holding above support at $4,158 a ton is now “critical” to avoid a slump to the March 30 low of $3,886.25 a ton and lower, he added. “Resistance to watch above $4,925 a ton is placed at $5,615 a ton, the 14 October 2008 high,” wrote Barclay. “Pressure below $3,886 a ton would call this into question though, making chart support important to hold on this current pullback.”