Morning Futures Roundup
Copper fundamentals are mixed, but may favor the bear camp if miners are able to get back online. The absence of robust Chinese demand may be too bearish of a force for the bull camp to overcome. Technically, Copper is at a fairly important support level of 4.25. Failure to hold this support could result in further long liquidation and fresh shorts entering the market. Due to the lack of Copper option liquidity, some traders may opt to enter the futures market. One must keep in mind that this futures contract is especially volatile and risky. Some traders may wish to consider shorting the May Copper contract on a close below 4.25, with a protective stop at 4.35 and downside objective of 4.05.
Copper has performed poorly lately, at a time when other commodities have hit multi-year highs. Traders are now faced with a dilemma after prices have pulled back ñ will supply or demand drive the market in the near term?
On one hand, Chinese demand has slowed considerably, and Japan's economy is at a standstill as the nation recovers from the natural disasters. New home construction in the US is virtually non-existent. All of these factors point to soft demand for the foreseeable future. While the demand side of the equation seems to favor the bear camp, supplies continue to tighten.
Copper miners have had their hands full keeping pace with demand. Heavy rains and human error has led to a reduction in Copper production in Chile. Mines fell well behind their first quarter targets, but if they are able to get back to normal operation, demand side fundamentals could win out. If prices do pull back to a large degree, we could see Chinese firms stockpiling once again. On the other hand, a slow descent could result in firms waiting things out.
The May Copper chart shows prices trading right at the 4.25 support level. Prices are also hovering near the 100-day moving average. A significant breakdown below the 4.25 mark could send prices lower and possibly test the 4.00 mark. The 4.00 level is a critical support level, both technically and psychologically for the Copper market. This was a level that the market had historically tested, but was unable to break through until late last year. Click image to enlarge.
This article is provided for informational purposes only. No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness. optionsXpress makes every effort to provide timely information to its recipients but cannot guarantee specific delivery times due to factors beyond our control.
Derivatives involve substantial risk and are not appropriate for all investors. Please read the "Disclosure Statement for Futures and Options" prior to investing in futures or options.
For investments using a straddle or strangle options strategy the potential loss is unlimited. Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and other risks apply.
View Mike Zarembski's post archive >