Medium Term Outlook LME Copper, May 3rd 2016

Revisiting the analysis published on Oct. 19th 2015, copper was expected to make new lows into the new year and thereafter rebound putting an end to the downtrend it has been going through since 2011. An exhausting long 5 years journey of little hope and lots of disappointment. In the charts below red line shows the expected path as drawn in 2015, clearly the forecast was not bearish enough on the short term, as price fell directly into target zone shortly after.

Here we are in 2016 and it seems so far that the call made 6 months ago is translating into reality. Again being in early stages of a trend, things are always open to sudden changes. In Copper key level as of now stands at the Jan 2016 low 4318. In the near term, price is expected to drift lower, however it should not break below 4318. In below charts the possible path identified in yellow lines. In a more bullish scenario price might hold above 4631. A break through 5438 would add a confirmation of an established uptrend. As long as price is trading below that figure, an alternate bearish scenario would call for another dip in prices later in 2016. As of now, we keep that on plan “b” basis and it would come into play only if price breaks 4318 to the downside.

Copper Weekly

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Copper Daily

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Medium Term Outlook Nickel, May 2nd 2016

In last article dating slightly over 6 months, it was forewarned that the downtrend might carry into early 2016 but not much beyond.  Now in 2016, here we are having seen the worst and prices are on the rise. Every dip is being bought which indicates a change in the sentiment towards a more bullish outlook. The worst news was happening in Dec 2015 and early 2016 on fundamental side, which only added to my conviction that the trend is wrapping up. Now stories started to look different in the news. It is sometimes amusing to observe how news fits the price action and really tell you nothing more than what you can already see in the price. News should be called olds as there is really nothing new about news.

Below is an updated chart on Nickel showing the downtrend sequence as complete and over (lines in red are the line drawn 6 months ago indicating future direction). The new uptrend is still shaky and fragile. So while a bullish view is favored, any sudden changes can reverse our short term outlook. However as long as key levels are held, the new baby bull is safe. The key level in Nickel for now is 8240, any break below that level would negate the immediate price rise. On the positive side, any price acceleration beyond 10700 would confirm the trend change to more bullish outlook that could take prices to 30000 and beyond in couple years to come. On the daily chart, the yellow lines indicate the possible price path over the month of May and sebsquent months. Again, the bullish view remains intact ONLY if 8240 is not broken to the downside.

Nickel Weekly Count

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Nickel Daily Count

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Dollar and Base Metals

It is true that all commodities now a days are priced in US Dollar. Logically one can deduce that if US Dollar rises then certainly commodities prices would fall. However it seems that the relation is not all that linear as one might think. Actually a correlation study from Jan 2006 to Oct 2015 shows at best a negative correlation of max -0.3290 for Copper and a -0.2096 for Nickel, that is a weak correlation.

This means if Dollar starts rising, it doesn’t at all mean that the base metals group will see immediate fall and the opposite is true. Although Major moves in the USD Index (.DXY), which is a composite of rates of several currencies against USD, do induce a change in mood within Base Metals.

Quick notes and observations for your reading pleasure:

  • USD Index topped in July 2001 and had a major change in direction and continued to make new lows until finally bottomed in Feb 2009
  • All Base Metals started rising during that period and some even a year or two before 2001.
  • During the period when USD Index was making new lows (Falling):
    • Zinc topped in Nov 2006 (compared to USD continuing its down trend till Feb 2009)
    • Nickel topped in Sep 2007
    • Copper went into topping mode on May 2006 (8800) and then formed another top in June 2008 (8880) and then after the 2008 crash (2825), made another marginally new high in Feb 2011 (10170), two years after USD had bottomed.
    • Aluminium had its first top in May 2006 (3310) and made another marginally new high (3380)
  • While All base metals were having a run from End 2008/Early 2009 the USD Index was trading in a range going up and down. Over the periods from 2006 to 20015 at times the USD Index and Base Metals where moving in same direction for short periods especially at beginning or end of a new long term trend.

So the relation is not all that linear, and certainly it doesn’t mean that if USD is falling then automatically commodity prices will start rising. It also doesn’t mean that when USD makes new lows and highs that commodity prices would make a new highs and lows.  The correlation that exists is a rather weak one even on timing. It is more a general indicator than a specific one. From the events listed above, one might note as well that commodities, or at least the base metals group, has been leading indicator as to potential turns in the direction of the USD.

In my next article I will be presenting my long term view on USD Index and why I believe that Base Metals and Commodities in General will be changing direction over the next few years.

Interesting Correlations

Performing a simple correlation study on various indices and the group of LME Base Metals, I have noticed a particularly interesting relation between European stocks, (English FTSE (.FTSE), French CAC 40 (.FCHI), Eurostoxx 50 (.STOXX50E) , Italian Index (.FTMIB), Swiss Market Index (.SSMI))  marked in red, and the Base Metals group. Interestingly the European indices had higher correlation factors than what traditionaly has been seen as commodity dependent economies marked in Blue (Toronto Stock Exchange Index (.GSPTE), Australia Stock Exchange Index (.AXJO), Russian Stock Exchange Index (.IRTS), South African Johannesburg top 40 Index (.JTOPI)).However, most Interesting is that Shanghai Stock Composite (.SSEC) has one of the lowest correlation factors among the group of indices.

 

BaseMetalIndicesCorr

 

The study included data from 02 Jan 2006 to 19 Oct 2015. English FTSE had the highest correlation to base metals among all indices included in the study. The highest correlation factor of 0.5215 is between copper and English FTSE, indicating that copper and FTSE have a fairly positive correlation and the two instruments tend to rise and fall simultaneously.

That said, this however doesn’t imply that the amplitude of the rise and the fall is the same. I have noticed that only the periods coincide. FTSE has been rising from June 24th 2013 to August 2nd 2013, Copper was rising from June 25th to August 16th 2013. Another recent examples FTSE began to fall from 27th April 2015 into August 24th 2015 and copper started its descend on May 5th and weirdly bottomed on August 24th 2015. Although both instruments in these two examples given were on longer term different trends.  Meaning if FTSE makes a new high or low it doesn’t mean Copper will do the same, it only means that it will likely go in a similar direction short term, short term movements tend to coincide time wise.

How useful is this?

This can be used as a proxy indicator, if say it is not clear on one instrument what the next step is, the other instrument might be offering a better clue.
Enjoy!

Outlook into 2016 and beyond: Nickel, Copper, Aluminium, Zinc, Lead

No wonder that that past 4 years from the 2011 highs in most of base metals, have been among toughest years seen in a while. The only good news is that probably now, near term future might look brighter. Most of the metals have been going through a correction that has exhausted not only prices, but traders as well. It has been turbulent 4 years that probably are just about to be over.

I say just, as it seems we might still have one more shake into 2016. Below I present my views on the various metals in charts, I would be glad to explain in details with price targets for interested parties. The short red lines on the chart, indicate the probable direction over time and potential price zones without specific targets.

There are multiple possibilities on how to count these charts, I have chosen these specific counts after several amendments, I believe keeping the count simple should work best. Alternative counts would indicate that metals are already in early stages of a new bullish rise having bottomed in August. I would gladly adopt that view, however price action so far leaves room for doubt and hence I have settled for the counts presented below:

Nickel Weekly Count

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Nickel Daily Count

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Copper Weekly Count

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Copper Daily Count

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Aluminium Weekly Count

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Aluminium Daily Count

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Zinc Weekly Count

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Zinc Daily Count

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Lead Weekly Count

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Lead Daily Count

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Short Term Nickel Update Oct 5th, 2015

Good Morning Traders!

It has been a month since our last post! Mainly due to the not so eventful price action. Prices traded in range throughout Sep. In our last post, I was looking for price to tick a little bit higher before resuming larger downtrend.

Price did travel higher after the post however peaked at 10475 and then drifted lower over the course of 12 days to 9605 to again go higher and peak at 10595.  Price somehow worked out as foretasted to hold above low of 9215 and peak by end Sep (price peaked on Oct 1st) but certainly momentum was weaker than expected and price did not come close enough to 11000.

That said it remains open to be seen if 9215 could hold through October as well. I don’t have my hopes high on this possibility. Fruther range trading expected in October.