The price of copper pulled back towards the $445 price region last week, after setting a new all-time high just under the $490 level, as traders started to book profits on the multi-month rally.
Copper has so far lacked genuine buying interest to take the red metal to in new, and much higher trading range above the $500 level. But this may not be the case for long.
Stimulus programs in the United States and China have directed resulted in copper prices rising this year. Massive infrastructure projects are very bullish for copper’s fundamentals, due to the fact that the metal is widely known to be in great demand when rebuilding of economies is underway.
Last week, the Biden administration announced a massive $6 trillion fiscal budget, with much of this being spent on infrastructure. The budget for the following year could even top $8 trillion, which could mean even more demand for infrastructure, and indeed copper.
Investment banks are also turning wildly bullish towards copper, despite the recent pullback or multi-day correction. Bank of America have put out a price forecast for copper to reach $587 by the first quarter of next year.
Based on fundamental and technical analysis, I think the case for $600 is strong. However, I am even more bullish towards the red-metal, and believe that copper could be headed close to $700 over the long-term.
In the near-term, I have concerns about copper, and believe a short squeeze may need to occur or indeed a shake-out before the next major rally commences. The ActivTrader Platform is also suggesting the same as sentiment is overly bullish towards more gains in copper.
Retail sentiment is 88 percent positive at the moment, meaning that almost 1 in 9 traders believe copper is going to be trading higher. In my experience, one-way sentiment skews rarely bode well. So, a further shake out towards $430 to $400 area is highly possible in the near-term.
Copper Short-term Technical Analysis
The four-hour time frame shows that a large, inverted head and shoulders pattern appears to be forming, however, a meaningful price floor may not have been fully established yet. I believe a further decline towards the $430 or even the $400 area is plausible given the heavy one-way sentiment skew.
According to the overall size of this typically bullish price pattern copper could stage a $100 directional move if the price dips to $400 and then recovers back towards $500.
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Copper Medium-term Technical Analysis
The larger picture for copper prices remains very bullish, and continues to show a massive inverted head and shoulders pattern on the weekly time frame, which remains triggered while the price trades above the $400.00 level.
According to the overall size of the bullish reversal pattern, copper prices could rise still towards the $700.00 level over the medium to long-term before a meaningful correcttion takes place.
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