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Dr. Copper and Global Economy Look Vulnerable
Dr. Copper, that metal with a Ph. D. in economics, isn’t looking so hot. In fact, it is at a reasonable risk of breaking down thus highlighting the current risks in the global economy.
Figure 1 is a weekly chart of a continuous futures contract for copper going back to 1991. The black dots on the price bars are key pivot points, which are the best areas of support (buying) and resistance (selling). This past week, price closed below a nearby key pivot, and I believe that this puts copper at significant risk of lower prices as a prior area of buying support has not held. In essence, breaks of support define a down trend.
Figure 1. Copper/ weekly
Let’s look at the evidence by defining a study. Let’s buy copper when prices close below a prior key pivot point as they have done this past week. All positions will be exited either when the key pivot point is recaptured (i.e., prices close above resistance thus reversing the trend from down to up) or after 12 weeks have elapsed.
Such a study produces the following maximum adverse excursion (MAE) graph. See figure 2. The MAE graph looks at every trade from a strategy. Because very few traders and investors ever pick the exact bottom, MAE measures how much you had to lose before a particular trade or investment is closed out for a loss or a win. MAE is the angst factor that measures in percentage terms how much a trade moves against its entry price. See the red caret inside the blue box in figure 1. This one trade had an MAE (or draw down) of 9% (look down the x axis) before recovering to be closed out for a 4% loss (look up the y axis). We know that it was a losing trade because it is a red caret.
Figure 2. MAE Graph
Now look to the right of the orange line. 7 out of 23 trades had MAE’s greater than 8% over the following 12 weeks. This suggests to me that there are risks of further deterioration in copper prices as it has broken below a key pivot point. This would also be consistent with the current reports of weakness seen in the global economy. (See Roubini here.)
On the other hand and as we all know from trading, support levels can be broken yet prices can recover those levels rather dramatically leading to strong moves. In this case, I would not look to get long copper until prices break above the current key pivot point at 4.1078; in addition, as long as copper is below this level, the global economy remains on recession watch.
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"I realized technical analysis didn't work when I turned the charts upside down and didn't get a different answer"
Warren Buffett
If tecnhical analysis worked (produced a higher return than the market average over time) we would know by now.
As for copper, it has a value dollars do not so there is no harm in holding it with zero percent interest rates. The chinese wont dump it because they dont do dump and it costs them nothing to hold it. Besides, who would they sell it to? The North Koreans?
Copper prices will "fold" when demand is less than supply. Once people figure out the dollars it takes to buy a unit of copper are worthless the nominal price will rise, not fall.
Demand, supply, price, liquidation value, cash flow, trends, psychology, mean reversion, time. These are the variables that matter.
very nice
What a load of shit. TechnicalTake you can do better than this. The logic is offensive. Complete fucking rubbish
Yeah. what he said.
Sorry, I was wondering, do any of you guys take physical delivery from the Comex? I have a warehouse and wanted to accumulate obscene amounts of fresh, natural copper.
Water, bitchez. Stock up now. 1000 gallons per person minimum. Use the water-replace as needed.
Some day you'll go to the tap and nothing will come out.
I realize that it's in everything industrial, plumbing, motors, heat exchangers, you name it.
But it is the second most common metal on earth, behind iron. Its price seems high to me, seeing how industry is slowing, construction has all but stopped, and we have good sources all lined up and ready for any increased demand.
I hope JPM takes a bath on it, fuck em. They are probably hedging their fiat thinking copper might be monetized sometime.
(It might make good change in a return to real money.)
yes, its a common metal (like gold) but requires a huge amount of water to process.
How will Chile get all that copper out of the ore in ten years when there is no more water.
Water is a key variable for copper no one is looking at.
Never mind Uncle Max who would hoard huge bags of dimes, quarters and half dollars back in the 1950's.
My cousin Arthur has 1,020,955,024 pennies that he collected from 1970-1975.
Copper bags, bitchez!
The Chinese have 100s of warehouses full of copper that they use as collateral for business or RE loans. In the coming economic slowdown, the value of these assets may be marked to market, causing a horrendous crash.
very helpful...thanks, techtake.
I seem to recall that the morgue bought loads of copper ($1b ) late last year?
I believe they did, and aluminum, too.
edit: Might not have 'bought' it but at least they are controlling it through their warehousing operations...
http://financialbin.com/2011/06/17/goldman-jp-morgan-have-now-become-a-c...
The top chart has no labeling of the vertical scale, no units, only one black dot is shown, and the time scale is neither clearly labeled nor does it appear to go back to 1991. What is 4.1078? yuan per pound? The rest of the text is gobbledygook. "maximum adverse excursion" sounds like my first date.
Whew. I thought it was me that was missing something...
Why did it rise in the first place? Housing is it's biggest consumer and that's been DOA for two years now. I note it is rising again as the economy slows. Hmmmmm. Sounds like bad money to me not bad copper. And tech collapse 2.0 seems to confirm.
It rose on the global(China) demand story as well as the recent Bernanke inflation craze on commodities.
Copper globe to replace the crystal ball?
Always has been that way.....
They say Dr Copper is stashed away in Cathay. So it must be a pain to those hoarders to see their commodities melt under the mid-day sun. They better start putting copper into their high rises and automobiles to sell off their 'golden hordes' now going copperish.