Copper Futures Merit Close Examination

 | Oct 20, 2011 | 12:00 PM EDT
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Comex Copper futures for December delivery in early October hit a fresh 16-month low of $2.9940 a pound. In February nearby copper futures scored a new, all-time record high of $4.6495. Since early August the copper market has trended sharply lower and has seen a haircut to the tune of over $1.50 a pound, or around 30% in value. This red metal is one of the most important industrial construction materials in the world.

When copper prices are trending lower it suggests flagging worldwide industrial demand, which can be extrapolated into weaker world economies and weaker world stock markets. In fact, chart price history shows that copper prices can lead major trending price moves in other commodity markets and also in the major stock indexes of the world. To put it another way, the world's stock and many commodity markets will not show sustained recoveries until the copper futures markets can do the same.

Copper futures prices posted a moderate rebound following the early-October low and hit a fresh three-week high of $3.4365 a pound earlier this week .However, copper prices have dropped sharply in the past three trading sessions . On Thursday morning, December copper futures scored a low of $3.1250.

If December copper futures drop below what is now strong technical support at the October low of $2.9940, it would not only be a significantly bearish development for copper, but also for other commodity markets and the world stock markets. Also, a drop in copper futures prices below the October low would also suggest that crude oil futures prices could drop below their recent low of $75.15 a barrel, also scored in early October. Multiple daily closes in December copper futures prices would need to move back above solid technical resistance at $3.50 a pound to suggest the red industrial metal has bottomed out and would then begin to trend sideways to higher.

In recent years, China has become a commodity-consuming juggernaut, exploiting much copper. With a yearly economic growth rate of around 10%, China is the world's third-largest economy, behind the U.S. and the European Union. Recent weaker-than-expected economic data out of China has added pressure not only to the copper market, but other raw commodity market prices, as well.

China's economic data have become just as important as the data coming out of the United States and the European Union. In fact, it can be argued that China's economy is even more important for copper and the other commodity markets because it is such a major growth market, compared to the more mature economies of the U.S. and European Union.

Indeed, the copper market bears close scrutiny by traders and investors in many markets.

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