09-08-2018: December Copper: Once Again, It's All About China

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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

1
2
01

6     5

4     3


Introduction

The good news for copper prices is that the world's largest copper mining concerns, and there are quite a few of them, are increasing investments in new exploration areas and spending capital on infrastructure, confident of eventual growing demand for electrification of more cities and vehicles worldwide. But it seems insufficient to offset news regarding the state of China's economy, as China is the largest consumer of copper and its economy is slowing along with demand. Most analysts see this as continuing throughout the rest of 2018. And of course, trade wars aren't helping exports and creating stockpiles of increased inventories.


Intermarket Analysis

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




Parabolic Chart

December Copper:

Parabolic Chart


Nirvana Chart

December Copper:

Initial Chart


News Analysis

London Metal Exchange copper stocks declined by 7,750 tons in recent overnight news that China purchased a Canadian copper concern for $1.4 billion. That highlighted China's strong need for copper to build batteries for electric cars. A recent option expiration passing brought the market beyond a liquidation wave. The main focal point for copper appears to be ongoing Chinese demand and ongoing weakness in Chinese stock markets. The Chinese economy overall could throw copper prices into a fresh downside breakout.

China's Zijin Mining Group swooped in on a huge undeveloped copper mine in Servia, beating out an earlier hostile bid from a Candian rival. BHP Billiton LKtd., the biggest copper miner, snapped up a stake in one of the world's biggest undeveloped assets also. And Glencore Plc increased its exposure to the metal with a new offtake deal. Thus the world's biggest miners are openly ambitious to increase their exposure to copper even as prices continue to slide. They're taking the long term view that increasing electrification of transport vehicles will lead to growing demand while new supplies of the metal are constrained.

Annual copper production from for of the world's four biggest miners are: BHP: 1.33 million tons, Glencore: 1.31 million tons, Anglo American: 0.58 million tons and Rio Tinto: 0.46 million tons. Codelco in Chile is the world's biggest producer.

Rio Tinto is believed to have the strongest balance sheet in the sector.

KAZ Minerals, Plc recently unveiled plans for paying $900 million for a deposit in Russia that would cost about another $5.5 billion to exploit.

Nickel has been the outperformer in the industrial metals group, but even it has succumbed to weakness in the group.

Chinese manufacturing data showed its economy slowing to a 14-month low with a PMI reading below 50, in the export sector, indicating contraction. The slowdown in China is weighing on global commodity markets. The slowdown may have more to do with earlier policy tightening internal to China, rather than trade tensions with the U.S., but both are factors. Analysts generally believe there is little likelihood of a recovery in prices of industrial commodities in 2018. Investors are waiting to see if the U.S. will impose and additional tariffs on $200 billion worth of Chinese goods.

Hurting metals prices including copper is a strong U.S. Dollar. That makes materials more expensive for overseas buyers. A weakening U.S. Dollar in the past couple of days has strengthened copper prices by increasing export demand.

China consumes about half the world's copper. It is also a large consumer of other metals in sympathy with copper prices, but is using less in construction and manufacturing.

The Dollar's rising strength and rising Treasury yields are both hurting copper prices.


Point & Figure Chart

345.0|                                                                  T  9/ 5
     | CMX - Dec-18 Hi Grade Copper, 25000 lb,c/lb Cm.=0.01  Lim.= 0.3
     |
     |                                    X
     |                                  X XOX X   X
325.0|__________________________________XOXOXOXO__XO___________________________
     |X                               X XOXOXOXOX XO
     |XO                              XOXOXO OXOXOXO
     | O                              XOXOX  O OXOXO
     | O        X                     XOXOX    OXO O
305.0|_O____X___XO____________________XOXOX____OX__O___________________________
     | O    XO  XO                    XO O     O   O
     | O    XOX XO                    X            O
     | O    XOXOXO                  X X            O
     | O    XOXOXO                  XOX            O
285.0|_O__X_XO_O_O______________X___XOX____________OX__________________________
     | O  XOX    O            X XOX XOX            OXO
     | O  XOX    O            XOXOXOXOX            OXO
     | OX XO     OX           XOXOXOXOX            O OX
     | OXOX      OXO          XOXO OXOX              OXO
265.0|_OXOX______OXO__________XOX__OXOX______________OXO_______________________
     | OXOX      OXOX         XOX  O O               O O
     | O O       O OXOX       XO
     |             OXOXO      X
     |             OXOXO      X
245.0|_____________OXOXO______X________________________________________________
     |             OXO OX     X
     |             O   OX X X X
     |                 OX XOXOX
     |                 OXOXOXOX
225.0|_________________OXOXOXOX________________________________________________
     |                 OXO OXO
     |                 OX  O
     |                 OX
     |                 O
205.0|_________________________________________________________________________
     |
     |
     |
     |
185.0|----|----|----|----|----|----|----|----|----|----|----|----|----|----|---
      11              11      111111    111
      01112333444577890124456811112212690021222345667889
      22120123223202220000203201220112211212001010012120
      86563801020692829544090331395623831753574101585484
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 "Volume". It is giving a buy signal.

Internal Printout 1 Internal Printout 2

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

Results


Third System Confirmation

Our third system has triggered a buy 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 $3,410. Use of options is advised.


Historic Range

Scale traders are not a factor in this price range.

Historical Chart


Commitment of Traders

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 with the best track record are getting increasingly-long.

Commitment 2

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

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that the current downtrend remains intact from the last volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Copper May 2.75 Call and Sell (1) Copper March 2.60Call @ .0555 to the sell side or greater.


o 1 o 2 o 3 o 4 o 5


Calendar Spread

What the Dec. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. The best time to enter or leave the above spread is when it is at -2.50 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -6.00 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be at the sell the far, buy the near point.





Level Table:

Level Table

The path of least resistance is down.
345.0|                                                                  T  9/ 5
 CMX - Dec-18 Hi Grade Copper, 25000 lb,c/lb Cm.=0.01  Lim.= 0.3
     |
     |
     |HJ
335.0|HHJJ_____________________________________________________________________
     |CHHJJJJKTUU
     |CCDHHJJJJJKLMTUU
     |CCDDDHHJJJJJJKKLLMMMMMTTUUUU
     |CCDDDDDDHHJJJJJKKKKKKKLLLLLLMMMMMMMTTUUU
325.0|CDDDDDDEEFFHHHKKKKKKKKKKLLLLLLLMMMMMMMTTU________________________________
     |AACDDDDEEEEEFFHKKKLLLLLLMMMMNNOQQTTUU
     |AACCCDDEEEEEFFFFFHKKLLMMMMNNOOQQQQTU
     |AACDDDEEEEEEEFFHHHHKKLMMNNNNNNNOPPQQQQQQRTU
     |ACCDDEEEEEEFFFGHHHKKLLMNNNNNNNNOOPPQQQQQQQQRRSTTUU
315.0|AAACDEEEEEFFFFGGHKKLLMNNNNNOOPQQQQQQQRRRSSSSTUU__________________________
     |AAACCCEFFFFFGGGHHLLMNNNOOOOPPPQQQQQQRRRRSSSSSSSTTTTUU
     |AAAACCCCFFFGGGHLLLNNOOOOPPPPPPQQQQRRRRRRRRSSSSSSSTTTTTU
     |ACCGGHLLOOOPPPPPPPQQRRRRRRRRRSSSSSTTTTUU
     |AACGGGOOOOPPPRRRSTTUUUVV
305.0|AAAABBBBCGGGOOOPPPRRTUUVV________________________________________________
     |AAABBBBBBBBCCGGGGGOOOPPVV
     |AABBBBBBGGGGOVVV
     |BBBBGOVVV
     |BVVVV
295.0|VVV______________________________________________________________________
     |VVV
     |V
     |V
     |VWWXX
285.0|VWWXXX___________________________________________________________________
     |VVWWWXXXXXX
     |VWXXXXXXXY
     |VWWWWWXXXXXXY
     |WWWWWWWXXXXXYYYY
275.0|WWWWWWXXXXXYYYYYZ________________________________________________________
     |WWWWXXYYYYZZZ
     |WWYZZZZZZ
     |WWYYZZZZZ
     |YYZZZZZZZ
265.0|YYZZZZ[__________________________________________________________________
     |YYYZ[
     |YYY[
     |YY[[   <<<
     |YY[
255.0|_________________________________________________________________________
     |
     |
     |
     |
245.0|-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=-0.073
           1 1 1 1 1 1 1                                              
       9 9 0 0 1 1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9           9
       0 2 0 1 0 1 3 1 2 1 3 1 2 1 2 1 2 1 2 0 2 0 2 0 2 0           0
       7 0 4 8 1 5 0 4 9 6 0 3 8 4 8 2 6 0 4 8 2 9 3 6 0 4           5


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 9/06 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                  HGZ8    December Copper

                      High Price:  273.2
                   Current Price:  261
                       Low Price:  235.9

                            Risk: -0.096
                     Opportunity: -0.197

                    (O/R) Ratio =  2.057


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart - 1
Nirvana Chart - 1
News - 1
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 - 1
Total - 2
Place 4 December Copper on a Sell Watch with stoploss @ +7 .25 above the get-in point when recent price is represented as "261.00".
____________________________________________________________________________________________________________________________________________S.O.