02-13-2019: May Copper: Timing is All in Reactive Copper Market

(Click on links below. Whole page needs to load before links work.)

Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calendar Spread

Level Table
Other Factors
Recommendation

6

2     3

1     01

4     5


Introduction

As we started the review of copper in this article, we suspected our conclusion would be a "sell" based upon the very reactive nature of copper prices, the fact that they are in a consolidating pattern in the high of a recent trading range. At the same time however, some banks and copper mining companies were projecting a price of $3.20/lb. in the second quarter of 2019, based upon supply/demand considerations and potentially strong demand from China. That could "trump" trade relations as a factor. In situations of consolidation that are hard to analyze for trends, we occasionally see a "tie" in decision weighting factors, at which point we "double weight" the news. The news suggests it is only a question of when, not if copper prices will rise. Projections for the second quarter of 2019 look good on top of what is considered falling exchange stocks of physical copper and something called a "supply deficit".


Intermarket Analysis

We fed Copper, Silver, and Palladium into a neural network to get the following result:




Parabolic Chart

May Copper:

Parabolic Chart


Nirvana Chart

May Copper:

Initial Chart


News Analysis

With no bullish news on the trade front, copper prices have been sinking again. Negotiators are still staking out their positions. Copper appears to need some corrective balancing as it has been trading above January on lack of trade progress that would improve world copper demand and extend a world copper deficit. If rumors are that there will be no imminent trade deal, the market may remain under liquidation pressure. The main factors in copper prices are any hint of trade progress versus derailment of talks. Derailment seems to be in the lead as a U.S. Navy mission through the disputed South China Sea cast a shadow over negotiations in Beijing. U.S. President Trump said he did not plan to meet with President Xi Jinping before a March 1st deadline for a trade deal.

High levels of greenish tailings in the Torata River in Peru suggest a possible spill and contamination of waters from the Southern Copper Mine there which could cause a shutdown. Southern Copper's processing plant at Cuajone has already been shut down for five days as a preventative measure. Problems in neighboring Chile, also due to heavy rainfall, leaving six people dead, also prompted shutting down mining operations from the world's largest copper producer. Chile's Chuquicamata copper mine has been shut down.

Slowing global economic growth is also plaguing copper prices.

A dstrengthening U.S. Dollar has also hurt copper prices. Exports from the U.S. mining interests and refiners would be affected by increased competition from other sources.

Grupo Mexico, another copper source, reported profits falling by a third in the fourth quarter of 2018. The $2.567 billion reported revenues were down "slightly" from the previoius year.

Australia is considering new tax laws that could affect the mining industry there, and involving workplace law reform. The idea would be to encourage additional capital expenditures and investment in technology, although it is not clear how.

In a longer-term view, a supply-demand deficit in copper for 2019 has so far created little benefit for copper prices, but is expected to do so in the long run as prices respond to that situatioin. Analysts expect that to start happening in 2019 with support at $3.00/pound. Barclays Bank sees copper prices going even higher than that in the second quarter, but then retreating after slower economic growth.

A supply deficit of 275,000 tonnes exists as of 2018, but analysts seeing this declining to 50,000 tonnes in 2019 which is considered close to a "balance market."

China remains the key to copper and industrial metals overall. Increasing use of electric vehicles will help copper not only in the vehicles themselves but in the infrastructure used to support them.

Global stocks of refined copper have been steadily going down since March, 2018. Consolidation periods such as the present one are a challenge to any analyst. North American speculators trading in copper appear to be positioning themselves for another leg up according to some, depending upon how one classifies "traders." Money managers are fairly split as to taking on bullish or bearish positions.

Rio Tinto, one of the world's largest copper producers thinks that between 2020 and 2022 the copper market is supposed to enter a deficit area. The International Copper Association estimates that the demand for electric vehicles will rise to 1.74 million metric tons by 2027. Aegon Asset Management states that 34% of the global vehicle fleet will be electric vehicles by 2040. That would lead to an estimated 2.66 million metric tons of extra copper demand.

So the bottom line is that nearly all analysts are in agreement that it is only a question of time before copper experiences another strong bull market and legs up in price. They were at $3.30/lb. as recently as a year ago. But, the question is "when", not "if", and that is usually a dominant one in short-term commodities contracts.

Global copper stocks have declined from 1,050,000 tons in April of 2016 for London Metal Exchange plus N.Y. Commodities Exchange plus Shanghai Futures Exchange, to around 400,000 today.

Meanwhile, demand for copper concentrate by smelters and imports remain strong in China.


Point & Figure Chart


345.0|                                                                  T  2/11
     | CMX - May-19 Hi Grade Copper, 25000 lb,c/lb Cm.=0.01  Lim.= 0.3
     |                           X
     |                         X XO    X
     |                         XOXOX   XO
325.0|_______________________X_XOXOXO__XO______________________________________
     |                       XOXOXOXOX XO
     |                       XOXOXOXOXOXO
     | X                     XOXOXO OXOXO
     | XO                    XOXOX  OXO O
305.0|_XO____________________XOXO___O___O______________________________________
     | XO                    XO         O
     | XO                    X          O
     | XO                X   X          O
     | XO                XO  X          O
285.0|O_O____________X_X_XO__X__________OX_____________________________________
     |  O            XOXOXO  X          OXO  X X X
     |  O            XOXOXOX X          OXO  XOXOX
     |  OX           XOXOXOXOX          O OX XOXOX
     |  OXO          XOXOXOXOX            OXOXO OX
265.0|__OXO__________XOXOXO_OX____________OXOX__OX_____________________________
     |  OXOX         XO O   O             O O   OX
     |  O OXOX       X                          O
     |    OXOXO      X
     |    OXOXO      X
245.0|____OXOXO______X_________________________________________________________
     |    O O OX X   X
     |        OXOXOX X
     |        OXOXOXOX
     |        OXOXOXOX
225.0|________OXOXOXOX_________________________________________________________
     |        OXO OXO
     |        OX  O
     |        OX
     |        O
205.0|----|----|----|----|----|----|----|----|----|----|----|----|----|----|---
             11      1111      111            111
      44577990124456811111255690021234566788990121
      23202020000102201231200010212101001212023211
      20292327534959311300313936753450155548400088
The above chart is giving a conventional sell signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical high and a weak seasonal up period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Pattern". It is giving a sell signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for Copper (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system has triggered a signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $250. Initial margin on a single contract is $2,970. Use of options is advised.


Historic Range

Scale traders are not a factor in this price range.

Historical Chart


Commitment of Traders

It's very interesting that the end of the first Trump shutdown has finally allowed the Commodities Futures Trading Commission to update their reports through January 9th. But here we are already up to February 14th and facing another possible shutdown over the "wall" debate and compromise or lack thereof.

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Commercials, as we define them, are getting increasingly-long. The more commonly-accepted classification of market participants would have commercials net long and large speculators net short and having the best track record, but we think the groups as we classify them better show historically which is likely to be the best predictor.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

This chart is a bit hard to interpret for this indicator because of the difficulty in assessing a major trend. However, the average volatility shown below suggests that a change in minor trend to down is imminent at volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Copper July 2.75 Put and Sell (1) Copper July 2.80 Put @ 0.026 to the sell side or better.e


o 1 o 2 o 5


o 3


o 4


Calendar Spread

What the May - Dec. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at -0.50 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -2.25 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be at the buy the far, sell the near point.





Level Table:

Level Table

The path of least resistance is down.
350.0|                                                                  T  2/11
 CMX - May-19 Hi Grade Copper, 25000 lb,c/lb Cm.=0.01  Lim.= 0.3
     |
     |
     |
340.0|_________________________________________________________________________
     |
     |H
     |AHJJ
     |AAAHHJJJJ
330.0|AAAAAAAHHJJJJJ___________________________________________________________
     |AAAAAAAHHJJ
     |AAAAAEHHJJ
     |AAAABBCEEEHJJ
     |AABBBBCCEEEEEHJ
320.0|ABBBBBBBBBCCDDEEEEEEFHJJ_________________________________________________
     |BBBBBBBCCCDDEEEEEEEFFGGGHHJJJ
     |BBBCCCDEEEEEEFFFGGGGGGHHHJJ
     |BBCCCCDDDDEEEEFFFFGGGGGGGHHHHHHJ
     |CCCDDDDDDEEEFFFFFFFFGGGGGGGHHHHHHJ
310.0|CCCDDDDFFFFFFGGGGHHHJJJ__________________________________________________
     |CCCCDDDFFHHJJKK
     |CCCDDHKK
     |CCDDKKK
     |CKKKKK
300.0|KKK______________________________________________________________________
     |KKK
     |KKK
     |KK
     |K
290.0|KLL______________________________________________________________________
     |KLLMM
     |KKLLMMMMMQQR
     |KLLMMMMMMNQQQQRRUV
     |KLLLMMMMMMNQQQQQQRRRRRSTUVZZ[
280.0|LLLLLLMMMMMMNQQQQQRRRRRRRRSSSTTUUUUUVVVZZ[[______________________________
     |LLLLLLLLMMMMMNNNNNNQQQQRRRRRRRRSSSSSSSTTUUUUUUVVVVVWZZ[
     |LLLLLMMMMMNNNNNNOQQQQQRRRRRRSSSSSSSSTTTTUUUUUUUVVVVVVWWZZZZ[   <<<
     |LLLLMMNNNOOOOQQRRRSSSSSSSTTTTUUUUUUVVVVVVVWWZZZ
     |LLNOOOOOOQQQRSSSTTTTTTUUUVVVVWWWYZZZ
270.0|LNNOOOOOOPQSTTTTTUUUVWWWXYYZZZ___________________________________________
     |NNOOOOOOPPPQTTTTUUWWWWWXXXYYYZZZ
     |NNNOOPPPPQTTTUUWWWWWWXXXXXYYYYZ
     |NNNOPPPPPPPQTWWWWWXXXXXXXYYYYYYYZ
     |NNPPPPPPPPQXXXXXXYYY
260.0|NNPPPPPQXXX______________________________________________________________
     |NPPXX
     |XX
     |X
     |
250.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 1.000
                                       1 1 1 1 1 1 1                  
       2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 0 1 1 2 2 1 1 2           2
       1 2 1 2 1 2 1 2 0 2 0 2 0 2 0 1 0 1 3 1 2 1 2 1 2 0           1
       4 8 4 8 2 6 0 4 8 2 9 3 6 0 4 8 2 6 0 3 8 2 7 1 5 8           1


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 2/11 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                     HGK9    May Copper

                      High Price:  300.2
                   Current Price:  279.6
                       Low Price:  269.4

                            Risk:  0.072
                     Opportunity:  0.145

                    (O/R) Ratio =  2.020


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart - 1
Nirvana Chart + 1
News + 2
Point & Figure - 1
Cyclicals + 1
Seasonals - 1
Internal System 1 - 1
Internal System 2 0
Third System + 1
Historic Range 0
Commitment of Traders + 1
Range/Volatility - 1
Level Table - 1
Other Factors 0
Total + 1
Place 5 May Copper on a Buy Watch with stoploss @ -7 .25 below the get-in point when recent price is represented as "279.60".
____________________________________________________________________________________________________________________________________________S.O.