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Invalidation of the breakdown, the volume, and the trend line. What do these three key factors tell us about the future of copper?

Copper - The Current Overview

(Click on image to enlarge)

Looking at the daily chart, we see that the bulls took advantage of the proximity of the green support zone and slowed down the march of the bears to the south at the end of last week. This started a consolidation (marked with orange) between an intraday high (3.841) and an intraday low (3.757) of the big red candle formed on Jan.9.

When we take a closer look at the chart, we can notice that buyers tried to push the price higher and return above the previously broken moving averages, but all their efforts turned out to be in vain.

This resulted not only in quite extended upper shadows of the candles but also led to a breakdown under the lower line of the formation. The bears were just waiting for this and on Friday's session tested the strength of the mentioned support zone.

Thanks to their attack, the price of copper closed the day not only below the formation, but also below the 50% Fibonacci retracement, which opened the way to lower levels.

Although the bulls tried to save themselves in the next session, the collision with the previously broken moving averages turned out to be a too big challenge for them once again. As a result, another white candle with an extended upper shadow was created (confirming increased bears’ activity in the area of daily highs), which lured the sellers to the trading floor once again.

What did this lead to?

To another bears’ attack, which this time resulted in a fresh multi-week low of 3.723 and a test of the lower border of the green support zone. Although the price slipped to the lowest level since Nov.17, 2023, the bulls managed to trigger a pullback and close yesterday’s session above the Dec.7 low of 3.731, invalidating the earlier tiny breakdown under this level.

Is this a positive sign? Yes. Can we trust it and believe that the worst is behind the bulls? In my opinion, this is still a bit too little to uncritically believe in the strength and determination of the buyers. Nevertheless, we should keep in mind that yesterday’s volume was visibly lower compared to the previous day, which suggests smaller involvement of the sellers in shaping yesterday's red candle.

Additionally, daily indicators remain in their oversold areas, which suggests that buy signals may be just around the corner (when we look more closely, we can even see a positive divergence between the CCI, the Stochastic Oscillator and the copper price).

What does it mean for the price?

All the above suggests that the space for declines may be limited and reversal in the coming days can’t be ruled out. Nevertheless, this pro bullish scenario will be more likely if the buyers will close ranks and show even greater mobilization in the upcoming sessions, showing strength (e.g. forming a white candle on increased volume or a pro-growth candlestick formation like bullish engulfing pattern or something similar).

What could happen if they fail?

The next stop could be the previously broken upper border of the red declining trend channel (marked with red dashed line on the daily chart around 3.70 [and seen even more clearly on the weekly chart below]) and the 61.8% Fibonacci retracement (around 3.70) based on the entire Oct-Dec. upward move.

Nevertheless, taking into account the breakdown under the lower border of the orange consolidation, the move to the downside could take the price even to around 3.673, where the size of the downward move would correspond to the height of the formation. However, such a bearish development will be possible only if the bulls show great weakness and allow their opponents to push the price below the above-mentioned support areas.

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Summing up, although the bulls tried to push the price higher in the previous week, they failed, which translated into a fresh multi-week low and a test of the important support zone. Despite these negative developments, the buyers managed to invalidate yesterday’s tiny breakdown, which gives the first glimmer of hope for the bulls. Nevertheless, taking into account the strength of sellers in recent weeks, it is worth remembering the pro-declining scenario and subsequent supports. In other words, the outcome of the battle between market participants at current levels will likely determine the direction of the next move. Stay tuned.

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