The price of copper has been crushed.
Just five weeks ago the metal was trading for $4.50 per pound. It’s now at $3.40.
That’s a 24% drop in just one month.
This action has wiped out all the gains from the last 18 months. Now, copper is more oversold than at any time in the past 10 years.
But this sort of rapid decline in a commodity’s price often creates the conditions for a “snap-back” rally.
So, it’s probably a good time to bet on a rally in the price of copper.
The last time we were looking for a copper rally was back in November 2021.
Copper had broken out to the upside of a bullish pattern and it was pulling back toward a support level.
Back then, at $4.30 per pound, we figured there was a good risk/reward setup for a move up toward $5.00 or so.
It took a few months, but the price of copper eventually rallied as high as $4.95 before peaking in March.
But today, we have a different sort of a setup.
Instead of breaking out from a bullish pattern and then consolidating, copper has broken down badly.
The chart looks like death.
But it’s from this sort of chart that sharp, oversold bounces can occur.
Here’s how copper looks right now…
The price of copper rarely strays more than 10% away from its 50-day moving average (MA – blue line) before reversing back toward the line.
During its October 2021 and March 2022 highs, copper traded 10% above the 50-day MA.
In both cases, copper reversed and dropped back toward the line shortly after.
At its May low, copper traded about 11% below its 50-day MA.
Three weeks later, it was trading back at the line.
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On Tuesday, copper closed at $3.41 per pound – nearly 19% below its 50-day MA line. That’s an extreme move.
All the various moving averages also expanded far away from each other (green and red lines). So, the stage is set for a “snap-back” move.
Of course, it’s not a guaranteed rally.
But, if copper behaves as it has during previous extreme conditions, then the metal could trade above $4.00 per pound within the next few weeks.
That’s better than a 17% gain from the current price. And it looks like a good risk/reward setup.
Best regards and good trading,
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Jeff Clark
P.S. While copper is preparing for a rally, many other stocks are crashing with no end in sight. Every time stocks look like they’re moving up, they crash right back down. Markets and investors are reaching their breaking point.
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Reader Mailbag
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