We’ve Seen This Pattern Before

Three dollars per pound, without a doubt, is the line in the sand of the copper market.

As you’ll see in the chart below, this level has acted as support at least a dozen times in the last six years.

Because copper futures are now trading at this level once again, the big question on everyone’s mind is, “Will $3 hold this time, too?”

I suspect it won’t… And I’ll show you a good spot to get on the short side of copper, if you’re not already there.

See larger image

The support level at $3 is part of a larger, more meaningful pattern currently unfolding in this copper chart. That is, a descending triangle pattern.

This pattern should be familiar to you… we saw it a few months back, in gold.

It’s especially useful because it allows me to forecast future price moves based on the size of the pattern. In mid-April I wrote Gold Gives Up the Ghost and forecast gold prices would fall as low as $1,200/ounce.

Sure enough, gold hit $1,200/ounce last week.

Does copper share the same fate?

I think so…

The successively lower highs indicate buyers are only willing to pay lower and lower prices. It shows that copper bulls can’t succeed in pushing the price up. Eventually, these bulls will give up on their positions if they don’t see higher prices.

I’m expecting copper to break below $3/pound this year. And based on the size of its descending triangle pattern, it could go as low as $1.25/pound over the long run. Look above and you’ll see, copper traded at just $1.50 at the beginning of 2009, in the aftermath of the 2008 stock market rout.

Long positions likely have stop loss orders parked under $3, since this is such a clearly defined level. Once those stop loss orders are triggered, more aggressive selling will likely ensue.

Many of you are likely already short copper. That is, if you followed my advice in early June, when I recommended short selling this market between $3.21 and $3.24.

Now is a good time to lock in profits. Copper is finding short-term support at $3, once again, and could bounce another 20- to 30-cents higher before making another run at breaking below this level.

I see the next opportunity to get short between $3.30 and $3.40, on a short-term bounce back up to the most recent price peak, made in mid-May. After that, watch for copper bears to make a strong push to send prices well below $3.

That’s when you WON’T want to be a copper buyer… or thief.

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.