Copper pulled back from a test of Tuesday’s high during today’s session, with the contract for March 2017 settlement on the COMEX division of the New York Mercantile Exchange dropping back to $2.6040, a loss of 0.23%. The decline has resulted in no technical damage and may merely be in reaction to the extreme overbought condition that developed as of Tuesday’s close.
Further signs of improvement in the Chinese economy from inflation data boosted copper prices yesterday. Most notably, the producer price index (PPI) surged 5.5% year-over-year, compared to forecasts calling for a 4.6% year-over-year gain. That was the highest level since 2011.
First support is at the January 5th high at the $2.5885 level. Maintaining above this level would keep the bullish implications of today’s price action intact and the bias in copper prices firmly to the upside.
Second support is at $2.5500, representing the approximate level of the highs established Jan. 6/9. A close below this level would result in short term technical damage and suggest a return to the December low is possible.
At present, the bias remains to the upside, as Tuesday’s strong advance was accompanied by a 2.8% increase in open interest, implying new money entering the market drove prices higher, a bullish sign. Typically, moves driven by falling open interest prove difficult to sustain.
The current rally highs are testing the 61.8% retracement level of the November-December sell-off at $2.6370. A close above this level would increase the probabilities of a return to the November peak at $2.7530.