The copper rally continues with momentum driven by global recovery hopes. Dr Copper is long seen as a key indicator for the health of global markets and right now the diagnosis is that the world has a clean bill of health and should enjoy the vigours of this stimulus supported environment. Make hay while the sound shines.

Pullback time or more gains ahead?

Markets don’t move in straight lines, so a pullback is inevitable at some point. The bullish picture remains firmly in place. This was confirmed on Bloomberg this week by the Trading house and copper bull Trafigura Group who cited ‘extraordinarily strong’ demand that’s coming from across the board. Here are a few bearish developments according to Bloomberg:

  • Backwardation has eased with the cash metal less than $1 above benchmark futures.
  • The International Copper Study Group has rejected the consensus view saying the market will see a small surplus this year.
  • The 14-day RSI has been in overbought (+70) for seven-session. Personally speaking, that is what you would expect from a thriving market anyway, so it is only a note of possible caution and not an alarm bell in my book. Markets, especially strong ones, can remain technically overbought or sold for weeks on end.

On top of the above Bloomberg Intelligence analyst Grant Sporre says that record copper price is now not corresponding to physical indicators in the market.

The bottom line

Copper still remains a buy on the dips in the medium term. However, as always manage risk and only look for key areas to enter. The pullback will come, but until then buy the dip seems the sensible option as long as risk is defined.