Mo Failure Stems Copper Pop, Exposes Another Intra-Range Relapse, or Worse

October 5, 2016 8:03AM CDT

The market's failure overnight below our short-term risk parameter defined by 27-Sep's 2.1610 corrective low confirms a bearish divergence in momentum that defines 30-Sep's 2.2190 high as the END of the rally from 12-Sep's 2.0640 low.  While this 2.2190 high remains intact as resistance and our new short-term risk parameter, at least a larger-degree correction of Sep's 2.0640 - 2.2190 rally is expected.  At most, and as we'll discuss below, a resumption of the secular bear trend to new lows below 1.9355 could stem from this 2.2190 high.

Copper 240 min

Copper Daily

The daily chart above shows the bearish divergence in the RSI measure of momentum that, in fact, breaks Sep's uptrend.  This chart and also the weekly log scale chart below show the market's position still deep within the middle-half bowels of the 1.9355 - 2.3235-range that has encapsulated it all year that maintains the odds of aimless whipsaw risk.  But from a longer-term perspective, the exact and Fibonacci minimum 38.2% retrace of May'15 - Jan'16's 2.9560 - 1.9355-portion of the secular bear trend connotes underlying weakness and vulnerability.  And the mere lateral, triangular price action from Jan's 1.9355 low has got to first be approached as a corrective/consolidative affair ahead of the eventual resumption of the secular bear trend that preceded it.

In sum, today's bearish divergence in momentum defines 30-Sep's 2.2190 high as a tight but objective risk parameter from which non-bullish decisions like long-covers and cautious bearish punts may now be effectively based and managed.  This high and resistance is the latest in a series of progressively lower highs from Mar's 2.3235 high that we believe reinforce a major bear market correction from which the nearly-5-year secular bear market would be expected to resume.  It would be premature to conclude the resumption of the secular bear from Fri's 2.2190 high.  But it would also be foolish to ignore such a count as a possibility, a possibility with outstanding risk/reward merits.  Per such, traders are advised to return to a cautious bearish policy and approach recovery attempts to 2.1950 OB as corrective selling opportunities ahead of at least a return to the lower-quarter of this year's range and possibly a resumption of the multi-year bear market to new lows below 1.9355.

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