Copper - Engulfing Candle, Double Bottom, and the Bullish Outlook

Copper – Engulfing Candle, Double Bottom, and the Bullish Outlook

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Backdrop: Copper prices have been drifting down since 2012. In 2014, price extended the bearish trend to 2.87 before finding support. 2.87 remained the 2014-low as price rallied until July’s high at 3.30. This bullish attempt broke above the 200-, 100-, and 50-day SMAs while pulling the daily RSI above 70. This shows bullish trend development, albeit young and vulnerable at this point.

Trendline Support, Engulfing Candle: From the 3.30 high in July, we copper prices fell down to 3.08 last week. This dip cracked the rising trendline, and pushed the RSI below 40, showing loss of the bullish trend and momentum. This week however, the market held this support, and the 8/20 session formed a strong, bullish engulfing candle that broke above the last 3 daily candles. The copper market might preserve the bullish mode after all.

Copper daily chart 8/20
copper daily chart 8/21
(click to enlarge)

Bullish Outlook: There is a test right now just below 3.20. The cluster of moving averages serve as possible resistance, and the inability to break above them would actually be a bearish signal. A break above 3.20 should refocus price toward 3.30. In this scenario, the copper market has probably remained bullish, albeit in a choppy mode.

In the short-term, there might be a some bearish attempt due to intra-session overbought condition shown in the 4H chart, where the RSI was at 70. It has resolved that now, but there still could be near-term downside risk, even within the aforementioned bullish scenario. However, if price is to remain bullish in the short to medium-term, it should not break below 3.12. In the 4H chart that the 3.12-3.13 area contains the 50-period SMA in the 4H chart, and the previous resistance pivot for the double bottom. The 4H RSI should also hold above 40 if bullish momentum is to be maintained.

Copper 4H Chart (8/21)
copper 4h chart 8/21
(click to enlarge)

Otherwise, if price falls below 3.12, and the 4H RSI falls below 40, the bullish outlook should be shelved. At that point, copper prices would be assessed to be back in the choppy bearish mode. This neutral-bearish outlook will have downside risk first toward the 3.00-3.01 area, which were the lows in May and June.

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About Fan Yang

Fan Yang has been a forex trader since 2007. He attained his Chartered Market Technician (CMT) designation in 2010 and continues to trade and serve the Forex community by sharing his market outlooks.
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