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Copper is a great world economic activity barometer although perhaps we should narrow that down to ‘emerging’ nation barometer, as now they are the big consumers of copper.
The developed world demand for copper has peaked and is unlikely to rise much from here. The west is ‘coppered out’ and much of what the west ‘consumes ‘today is in the form of ‘techno-services’ – i.e. gadgets, mobile phones, electronic toys but also numerous services such as media, entertainment and professional services. The goods we seek contain little copper – but rather more important precious metals and trace elements.
But when we talk emerging nations we mean Asia – but we must take China out of that category as it is the number two global economy!
The demand for copper is now more a reflection of domestic demand within Asian countries – especially for Australian copper. So one might expect the copper outlook to perhaps reflect the medium-term outlook for the engine room of the world.
So let’s take a look at High Grade copper:
The Elliott outlook suggests a move higher:
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But when we see a retreat we should also look at the oscillator:
click to enlarge
And we can see that it has fallen well below zero and my view is that copper may rise again short-term but may not much – and if it does move a little higher it will struggle along the way. Support is not strong at the moment.
So let’s take a bigger view – on a weekly chart:
click to enlarge
I believe there is a high probability we will see a decent pullback in copper in the coming months and this in turn will take the shine off resource stocks and send them back to five year lows.
Next week we will review some of these stocks and consider how low they may go.
Enjoy the ride
Tom Scollon |