The copper market has been experiencing some exciting dynamics as of late, and traders and industry professionals need to understand the current state of this commodity.
Over the past few months, the price of copper has been relatively steady, with some minor fluctuations. This can be attributed to a few key factors. Firstly, global demand for copper has remained strong. Copper is widely used in various industries, such as construction, electronics, and automotive, making it a crucial component of economic development. Despite some uncertainties in the global economy, the demand for copper has remained resilient, contributing to its price stability. Secondly, there have been concerns about the copper supply keeping up with the additional new demand from electric vehicle (EV) production.
As construction projects and infrastructure development are expected to ramp up in the following Spring, the demand for copper begins in October as suppliers of building materials accumulate the metal.
Overall, the current state of the copper market can be characterized by steady prices driven by strong global demand and potential supply constraints. However, with the anticipated demand for copper in October, we may see a shift in market dynamics, potentially leading to increased volatility and higher copper prices.
For more information on the October seasonal low, please read my article for Barchart titled "Copper Prices: A Forecast On When To Expect A Rise In 2023."
In the interim, copper will be experiencing a seasonal pattern that has profited in 12 of the last 15 years, and five of them never had a losing closing day. Sound interesting?
Seasonal Pattern
Source: Moore Research Center, Inc. (MRCI)
The daily September copper chart illustrates this year's seasonal high in late January, earlier than usual, and the slow, steady decline to the seasonal low in June. From the seasonal low, the market rallied and has now begun to trade in the anticipated large sideways pattern until October. The blue line is the 15-year seasonal pattern that MRCI has found through extensive research.
The upcoming seasonal pattern was nicknamed the Pickpocket due to its relatively short duration, approximately 2.5 weeks you're in the trade.
Copper appears to have some overhead supply at the current price level, which is timely because MRCI research has found that the September copper market closes lower on or about August 15 than August 01 80% of the time during the past 15 years.
Could this be an opportunity to sell at the top of the sideways channel?
MRCI reminds traders that they offer this research to assist their analysis further, not trading recommendations.
The Commitment of Traders (COT) Report
Source: CMEGroup
The COT report for the trend following managed money traders illustrates how trendless the copper market has been during the past six months. The yellow line is their net position in the copper market. The scale on the right reflects the net position values. Between the '20s, the hash represents zero. When the yellow line is above zero, they are net long the copper market. They are net short when the yellow line is below the zero line. During the past six months, the trend following managed money has been whipsawed trading on both sides of the zero line.
Will a trendless copper market assist our seasonal short at the top of a price channel?
In closing
The Pickpocket trade may offer an opportunity for some small change profit if the risk is managed correctly and the trade meets your criteria for a setup.
The exchange-traded note (ETN) from Barclays for the copper market (JJC) is no longer available to trade. The futures markets offer a standard-size and a micro-sized contract to participate in this trade.
On the date of publication, Don Dawson did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
