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Defense of the support zone, proximity to the upper line of the channel, and candle formation. How did this affect the bulls?

During the last week, we could observe an interesting game between market participants, which ended with a change of the very short-term trend. What technical factors led to this development? What may recent price action trigger in the coming days? Answers to these questions you will find in today's article. Have a nice read.

Let's start today’s analysis by taking a closer look at the weekly chart.

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In the last comment on copper, you could read the following:

What could happen if they (the bulls) 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 (….)]) and the 61.8% Fibonacci retracement (around 3.70) based on the entire Oct-Dec. upward move.

From today’s point of view, we see that the situation developed in line with the above scenario, and copper extended losses (as expected), reaching the downside target – the previously broken upper border of the red declining trend channel.

As you can see, this important support withstood the selling pressure, which translated into a rebound and a comeback above the previously broken moving averages.

What impact this increase has on the short-term picture?

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Before we check the answer to this question, let’s recall the quote from the last commentary:

(…) another bears’ attack (…) 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.

Looking at the daily chart, we see that although the sellers tested the lower border of the green support zone once again, it withstood the selling pressure, and a doji candlestick was formed on the chart, signaling a potential trend reversal.

The next session opened with the green gap (3.745-3.756), which lured more buyers to the trading floor and resulted in a white candle that took the price to the previously broken 200-day moving average. This resistance triggered a pullback on the following day, but the green gap remained open, which translated into another attack on the mentioned resistance.

This time, the bulls managed to push the commodity above the 200-day moving average, which caused another jump in the price and resulted in another green supportive gap (3.793-3.806). Thanks to this price action, copper also moved above the 50-day moving average, which encouraged the bulls to fight for higher prices.

As a result, the commodity gained 2.44% during yesterday’s session and formed huge white candlestick on the chart, which successfully broke not only above the 38.2% Fibonacci retracement but also above the 50% retracement and closed the day above the 61.8% retracement, which is a bullish development.

Additionally, thanks to yesterday’s move, the bulls closed the red gap formed on Jan.3, which suggests further improvement in the coming day(s) – especially when we factor in the volume, which moved sharply higher from session to session, confirming the strength of the buyers and their involvement in the upward move.

How high could copper go?

Taking all the above into account and combining it with the buy signals generated by the daily indicators, I think that the next target for the buyers will be the red gap (3.917-3.925) created on Dec.29, 2023. If it is closed, we’ll likely see a test of late Dec. highs (3.956-3.974) in the following days.

Summing up, a successful defense of the green support zone and the proximity of the upper border of the declining trend channel encouraged the buyers to return to the trading floor, which resulted in a pro-growth green gap and a relatively quick invalidation of the earlier breakdown below the moving averages. This show of the bulls’ strength in combination with the buy signals generated by the indicators and the rising volume led to a move above three Fibonacci retracements during one session, which suggests further improvement in the coming day(s) and a realization of the pro-growth scenario.

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