Hold your horses before buying copper’s bullish break

Copper prices have surged to 11-month highs
Concerns over potential supply shortages in China sparked the move
Copper has lousy track record whenever it’s been this overbought on RSI in the past

Copper is surging on the back of a technical break and production curbs in China, leaving COMEX futures sitting at levels not seen in close to a year. It’s now overbought and getting plenty of market attention. Those considering buying the break may want to look at copper’s track record whenever it’s been this overbought on the four hourly chart in the past. As such, it may pay to wait for a possible retest of the former downtrend resistance before considering going long.

Chinese output curbs send copper prices surging

As reported in financial media late Wednesday, copper's surge coincided with an agreement being reached among some Chinese smelters to cut production due to a collapse in processing fees, raising fears about a shortage of refined red metal. Discussions are still ongoing, according to sources with knowledge of the talks.

Chinese smelters, the largest refined producer and consumer globally, are facing a financial crunch as fees paid to convert copper concentrate into metal slumped, heightening the risk of output cuts that could deliver a supply crunch for downstream users. The drop has been driven by a combination of factors, including upstream copper mine closures, decreasing mine output, and increased competition from smelters globally.

Leading to a bullish break in COMEX copper

The news had an immediate impact on copper prices, sending futures on major commodity exchanges surging around the world. You can see the bullish break in the four hourly chart below, accompanied by extremely strong trade volumes on COMEX – a bullish combination if there ever was one.

It’s easy to see why some may be looking to buy the break, but one thing that caught my eye is just how lousy copper has been whenever it’s been this overbought in the past on RSI using this timeframe. I’ve zoomed out to show why there’s room for caution, removing the volume indicator and circling the times when copper has been this overbought in the past.

But here’s a reason for caution

While I freely admit the breakout looks tempting to buy, I’m inclined to wait for a potential retracement before slinging into a long, especially as we’ve seen similar moves in gold and silver beforehand.

Dips below $4 would provide a decent entry point, allowing for a stop to be placed below the former downtrend for protection. Given the ease the price took out the highs from July 2023, an initial upside target would be around $4.20.

For those brave enough to short the break, you could flip the trade idea around and look to sell here with a stop above Wednesday’s high looking for a retest of the former downtrend.

-- Written by David Scutt

Follow David on Twitter @scutty

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.