Medium term
Trade view / 23 August 2017 at 13:53 GMT

Copper looks ripe for a correction — #SaxoStrats

Head of Commodity Strategy / Saxo Bank
Instrument: COPPERUSDEC17
Price target: 2.85
Market price: 2.98

Industrial metals have surged higher during the past month with speculation more than real demand being the key driver. Renewed attempts by exchanges in China to curb speculation may help reverse some of the recent strong gains. The combination of record bullish bets and negative divergence puts HG copper at risk of a correction. While the price has been rallying RSI has been falling, a normal sign of slowing momentum (see the short-term chart below). 

Hedge funds have been buying copper for the past five weeks with the latest period ending August 15 showing a record net-long of 120,000 lots. This was some 20,000 lots above the previous record from January 31 when prolonged disruptions at the worlds two biggest copper mines raised concerns about supply, something that has not been the driver this time round. 

Speculative positioning in HG Copper

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Management and risk description

HG copper can be traded both as a CFD and a future, with the choice depending on your risk profile and desired exposure. We apply a relatively tight stop given this trade is going against the prevailing trend, and a continued weakening of the dollar and/or a rally in oil could help lift copper further. We prefer using the December contract as the September contract expires next week. 

Parameters (sell either COPPERUSDEC17 or HGZ7)

Entry: sell stop at $2.98 which on the short-term charts signals a break of the neckline on a head-and-shoulders formation.

Stop: 1 ATR (Average True Range) or $0.06 from entry, for example with entry at $2.98 and the stop at $3.04.

Targets: $2.85/lb and $2.77/lb

Time horizon: two to four weeks.

HG Copper, first month cont.
Source: Saxo Bank
HG Copper, first month cont.
Source: Saxo Bank 

— Edited by Michael McKenna

For more on commodities click here.

Non-independent investment research disclaimer applies. Read more
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23 August
ozgur hatipoglu ozgur hatipoglu
Hi Ole, any ideas on zinc price?
23 August
rananb rananb
Hi Mr Hansen, any updates on Silver?Thank you
24 August
Ole Hansen Ole Hansen
Silver's recent performance has been disappointing considering the rally in industrial metals to which silver partly belongs. It has failed to outperform gold with the ratio stuck between 75 and 76 and it highlights how silver tend to struggle when the market focus turns to safe-haven and diversification demand which has been the case recently. Attached a slide from yesterday's webinar
25 August
Dear Ole. Stop or wait for more weeks? It reached 3.07
29 August
Ole Hansen Ole Hansen
The trade has yet to be triggered with December copper not breaking $2.98 before continuing its rally. I will take a look to see if the trade idea is still valid.


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