Industrial Metals: Is The Copper Market Being Cornered?
A few weeks ago I wrote about the copper market and how poorly it’s performing.
Well, as of today, bears are still firmly in control of this market. In fact, the red metal recently set another new 52-week closing low at $3.09 a pound on April 23rd.
Take a look…
As the blue line clearly indicates, the price of copper has really taken a beating in recent weeks.
Why such a bearish tape for the red metal?
It’s simple. The global copper market is currently oversupplied. In fact, copper storage levels at the London Metal Exchange (LME) are near 10-year highs at nearly 600,000 tons.
As you may know, LME inventory levels are a great indicator of global copper demand.
If supply levels are high, it should come as no surprise that copper prices are falling.
However…
While LME inventory levels are certainly bearish for copper, take a close look at the red circle at the bottom of the chart.
This is the ADX reading, and it’s at the highest level (44.69) in years.
In case you’re unaware, ADX is a technical indicator that measures the strength of a price trend. It doesn’t matter if the price is going up or down, as long as it’s trending the ADX will rise. But more importantly, the stronger the price trend is, the higher the ADX reading goes.
But listen to this…
Very seldom does ADX go over 45 without copper prices pulling off a strong rebound in following months. As a matter of fact, when ADX ran to just over 45 in October 2011, copper reacted by surging from $3.10 all the way up to $4.00 within five months… a 30% jump!
Judging by the current reading in ADX, copper may be on the verge of a monstrous rebound.
However, with LME copper inventories at such bloated levels, a dramatic rally seems unlikely.
So which factor will win out?
Will bearish supply/demand fundamentals keep copper bears roaring?
Or will this reliable technical signal finally give bulls a chance to run copper higher?
Well, here’s where our copper conversation takes a very interesting turn…
It turns out the high LME inventory levels I mentioned earlier may actually be very misleading.
In fact, I’m hearing some extraordinary rumors from numerous copper traders.
It appears two big trading houses are hoarding large amounts of physical copper. Believe it or not, much of the record buildup in inventories may be an attempt to corner the copper market.
Now let me be clear…
Cornering the market is no easy task in today’s markets. But if this rumor is indeed the case, we’re in store for some real fireworks in the copper market.
Of course, there’s a lot to these accusations. As a result, I’m dedicating an entire issue to discussing the potential corner in the copper market.
Be sure to check it out on Wednesday!
Until Next Time,
Justin Bennett
Category: Copper, Industrial Metals
