Copper prices declined for the seventh consecutive session in today’s trading with the contract for December settlement on the COMEX division of the New York Mercantile Exchange closing down 0.09% at $2.1035. The intraday low, by comparison, was at $2.0875.
Copper extended its recent decline despite easing concerns that Chinese growth is slowing. Data released late Tuesday came in with no surprises, with China’s third quarter GDP growth on target at 6.7%. Industrial production slowed to 6.1% year-over-year from 6.3%, while retail sales grew at a stable, yet solid, pace of 10.7% year-over-year. Overall, these numbers show that China is maintaining economic growth at Beijing’s targeted range of 6.5-7%. However, the disappointing industrial production figure put continued pressure on base metals.
As a result of today’s price action, first support at the upper boundary of the late August/early September trading range has been taken out. This leaves the next lower support at the $2.0695-$2.0640 zone, defining the August/September reaction lows. Copper prices have already retraced more than 61.8% of the rally from these reaction lows, increasing the probabilities of complete retracement. On a drop below the August/September lows, the target becomes the June low at $2.0315.
Market internals in the recent slide in copper have been supportive to the bearish case, as open interest increased nearly 10% from the October 10th rally high through last Friday’s close. This implies that new shorts entering the market drove the sell-off, a negative sign that suggests any near term rebound will likely prove temporary and be followed by further losses. While open interest has rebounded over the past two sessions, the overall bias in the contract remains to the downside given that copper prices have failed to stabilize despite the current extreme oversold condition indicated by the Stochastic indicator.
Further weakness in copper would confirm a breakdown from the symmetrical triangle that has developed in copper prices throughout 2016, as shown on the weekly chart. On a breakdown from the triangle, a downside objective will be derived by measuring the width of the base of the triangle and projecting that distance from the breakdown level. This objective would call for a move below the 2016 low at $1.9710.
Should copper prices move higher over the near term, first resistance is at Tuesday’s $2.1230 high. Above this level, the next higher resistance is at the October 6th reaction low at $2.1455. At present, a rebound in response to the oversold condition is not expected to breach this level of resistance.