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Update Dr Copper is Sick

February 6, 2020 6:35 AM

Update: Dr. Copper is Sick

On January 28th, I wrote an article titled “Dr. Copper is Sick”.  On that date, the price of copper was down 9 days in a row, from a high of 2.88 on January 16th to the low on January 28th at 2.576.  We discussed how the RSI was diverging from price on the 240-minute timeframe, however cautioned that when a new variable such as the coronavirus is entered into price discovery, one cannot rely on technicals alone to help determine where price may be headed next. We also talked about how there may be stops below 2.50. 

Price continued lower for 4 more days, 13 straight days in total, while hunting for stops below 2.50.  The low on the Monday was 2.487.  Price bounced with risk on Tuesday and Wednesday and is currently trading near horizontal resistance just below 2.618.  The RSI has unwound and is currently trading back in neutral territory.

Source: Tradingview, City Index

What now?

Is this just a dead cat bounce in copper or is there something more to it? This answer will be tied to how much demand will continue to be lost due to the spread of the coronavirus.  Economists are estimating up to 2% could be knocked off China’s Q1 GDP.  If the virus is contained and a vaccine is developed, copper will bounce relatively quickly.  Technicals will come back into play when that happens.  If price is not able to bounce above the 38.2% Fibonacci retracement level from January 16th to Monday’s lows at 2.638, then this can be considered a dead cat bounce and price may resume lower.  Overnight, price traded to the horizontal resistance at 2.618 and quickly reversed. 

Source: Tradingview, City Index

If price trades lower in the US session, it would form a shooting start candlestick, which is a reversal candle. Prices may resume the move lower.  Resistance levels to watch above the 38.2% retracement level are the 50% and the 61.8 retracement levels at 2.638 and 2.685 levels, respectively.  Above that is horizontal resistance just above 2.75.   There is some horizontal support which could be tested today near 2.55, however larger support comes on at the previous lows of 2.486.

China wants all possible cases of the coronavirus tested by Friday so that it can reopen factories on Monday.  If that happens, we should get a better idea next week of how well the virus is being contained. 


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