07-28-2014: September Copper: Chinese Demand Controlling Price

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calend Spread

Level Table
Other Factors
Recommendation

01
2     5
1    3

4     6


Introduction

Copper prices worldwide seem to be largely at the behest of Chinese "good will" and demand, as other circumstances remain unchanged. Chinese demand has been increasing, and a proposed future ban on scrap imports to China (as apparently they have plenty of scrap of their own) would possibly result in increased demand for refined copper, the basis for the commodities contract. This would be supportive for copper prices.


Intermarket Analysis

We fed Copper, Silver, and Lumber into a neural network to get the following result:




Parabolic Chart

September Copper:

Parabolic Chart


Nirvana Chart

September Copper:

Initial Chart


News Analysis

Short term overbought conditions in copper are suggested that sometimes copper cannot hold gains. There is strong Chinese demand, strength in U.S. equities, and a weak Dollar all contributing to copper strengrth. The Federal Reserve once again took a pass in its most recent deliberations on hiking interest rates. There is a proposed Chinese scrap copper import ban, but that limitation won't come into effect until the end of next year. It would simply shift demand toward domestic scrap supplies. It is believed an upward adjustment in the global demand for copper is behind recent rallies. There is doubt that this effect will remain in place. Copper has gained about 16% since May which is caused by a signficiant increase in Chinese demand. There have been some mining and shipping strike threats this year, especially in Perus, causing some loss in copper supply. The Peruvian strike involved 56 union. Tthe Philippines have had an export ban on copper. The strke threats are now believed to have diminished. Philippine Presidient Duterte said recently that the country's mining industry pays too little in tax and not enough in compensation for any environmental damage.

Chinese demand has driven copper prices up to their highest level in two years. Their planned scrap metal import ban will drive demand for imported refined copper there which should be a help to copper prices. China makes up almost half of the world's copper consumption, importing about 23 million tons this year. Freeport-McMoRan, Newmont Mining, Southern Copper, and BHP Billiton Ltd. stocks all gained sharply (2% to 15%) in equities trading. Refined copper output in China itself reached an all time high jumping 12% in 18 months.

Glencore Mining has placed a multi-million dollar bet on copper by investing just over $21 million into Brazilian copper producer Paranapanema (PMA). BHP is spending $277 million to modernize its Australian copper smelter. That smelter is the largest in the Southern Hemisphere, but has been hampered by insufficient power supplies and maintenance work.

Some news we see interprets the proposed Chinese scrap copper import ban as negative for copper prices because it credits recent copper price rise with belief that the ban would reduce copper demand, but as the days wear on, alternative interpretations favor more demand for refined copper (the basis for the commodities contract) which is bullish for the price. This could cause a reaction to recent price rises.

Others attribute a price rise to a governmenmt ban on smelters in Gejiu City in China's Yunnan Province for at least a week due to high air pollution.

Chilean miner Antofagasta is also facing strike threats from workers. Copper stocks worldwide have been on the increase, and recent mining strike threats have somewhat offset that news.

Previously, copper was buoyed to new heights over President Trump's infrastructure plans, but now the main power source is optimism over China. Copper got an additional boost after the International Monetary Fund increased its growth expectations for China in 2017 and 2018, leaving its forecast for the global economy unchanged and trimming its forecast for the U.S. The IMF also raised growth estimates for Europe and Japan.

After disappointments that a U.S. infrastructure package could take longer-than-expected, concerns over China supply, prices currently got a boost from supply threats, a brighter investor outlook on the world economy, particularly in emerging markets.


Point & Figure Chart

295.0I                                                                  T  7/26
     I CMX - Sep-17 Hi Grade Copper, 25000 lb,c/lb Cm.=0.01  Lim.= 0.3
     I
     I
     I                                                          X
285.0I__________________________________________________________X______________
     I                                          X               X
     I                                          XO              X
     I                                          XO              X
     I                                          XOX             X
275.0I____________________________X___X_______X_XOXO____________X______________
     I                            XO  XO  X X XOXOXO            X
     I                            XO  XOX XOXOXOXOXO  X         X
     I                            XO  XOXOXOXOXOXO OX XOX       X
     I                            XO  XOXOXOXO OX  OXOXOXOX     X
265.0I____________________________XO__XOXOXOX__O___OXOXOXOXO____X______________
     I                            XO  XOXOXO       OXOXO OXO  X X
     I                            XOX XOXOX        OXO   OXOX XOX
     I                            XOXOXO OX        O     OXOXOXOX
     I                            XOXOX  OX              OXOXOXOX
255.0I____________________________XO_OX__OX______________OXOXOXO_______________
     I                            X  OX  OX              O OXO
     I                            X  OX  OX                OX
     I                            X  OX  O                 O
     I                            X  O
245.0I____________________________X____________________________________________
     I                            X
     I                            X
     I                            X
     I                            X
235.0I____________X_______________X____________________________________________
     I          X XOX             X
     I          XOXOXOX           X
     I          XOXOXOXO      X   X
     I          XO OXOXO    X XO  X
225.0I__________X__OXO_O____XOXO__X____________________________________________
     I          X  OX  O    XOXOX X
     IX         X  OX  O    XOXOXOX
     I O        X  OX  O  X XOXOXOX
     I O  X X   X  OX  OX XOXO OXOX
215.0I_OX_XOXOX_X__OX__OXOXOX__OXOX____________________________________________
     I OXOXOXOXOX  O   OXOXO   OXO
     I OXOXOXOXOX      OXOX    O
     I OXO O OXOX      O OX
     I O     OXO         O
205.0I_______OX________________________________________________________________
     I       OX
     I       OX
     I       O
     I
195.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
      1111111                    1111111111
      11122221122333444556666777900111112221111222333334444555666
      11201120202012122020122012112111120021233011001220002013012
      37721517292873379467548627438144691887401304124183575370853
The above chart is giving a conventional buy signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical low and a seasonal down period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Trident." It is giving a sell signal.

Internal Printout 1

Results of "Trident" for Copper (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system has triggered a sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $250. Initial margin on a single contract is $2,905. Use of options is advised.


Historic Range

Scale traders are not a factor in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are remaining long.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to down is imminent near a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) HG Copper December 290 Put and Sell (1) HG Copper December 295 Put @ .0305 to the sell side or greater.


o 1 o 2 o 3 0 4 o 5


Calendar Spread

What the Sep. - Mar. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. The best time to enter or leave the above spread is when it is at +0.20 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -10.00 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be approaching the sell the far, buy the near point (or may have just missed it.)





Level Table:

Level Table

The path of least resistance is up.
300.0|                                                                  T  7/26
 CMX - Sep-17 Hi Grade Copper, 25000 lb,c/lb Cm.=0.01  Lim.= 0.3
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     |HJJJJKKKKKKMMMNNNNNNOOOOOPPPQQRRRRRSSSSUYYYZZ
     |HJJJJJKKKKKKMMMNNNNOOOOOOPPQQQRRRRSSSSSSUYYZZZ
     |HJJJJJKKKKKKKKKMMMMNNNNOOOQQQQRRRRRRSSSSSUUWXXYYYYYYZZ
     |HHJJJKKKKKKLMMMMNNQQQQQRRRRRSSSSSSUUUWXXYYYY
260.0|HHHJJJJKKKLMMNQQQRRSSSTTTUUUVWWXXXXY_____________________________________
     |HHHHJJJLMMQQRSTTTTTTUUVVVVVWWWWWXXXXXX
     |HHHHJJLLMMMMMMSTTTTTTTTUVVVWWWWWWWXXXXXX
     |HHHHJJLLLMMMMSTTTTTUUVVVVWWWWWWXXX
     |HHHHHJJJLLLLLLLLLMMTTTUUUUUVVVVVVWW
250.0|HHHHJJJLLLLLLLMMTUUUUUUVV________________________________________________
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     |HHJ
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240.0|HH_______________________________________________________________________
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230.0|H________________________________________________________________________
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     |AAAAAABEEEEEEG
220.0|AAAABBBBBBEEEEEEEEFFFFGG_________________________________________________
     |AAABBBBBBDDDDEEEEFFFGG
     |BBBBDDFGGG
     |BCDFFG
     |CCCDDDDDFFFGGGG
210.0|CCCCCCCCCDG______________________________________________________________
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200.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.037
                 1 1 1 1 1 1                                          
       7 8 8 9 9 0 0 1 1 2 2 1 1 2 2 3 3 3 4 4 5 5 6 6 7 7           7
       2 1 2 0 2 0 2 0 1 0 1 0 1 0 1 0 1 3 1 2 1 2 1 2 1 2           2
       8 0 4 8 2 6 0 3 7 2 6 3 8 1 5 2 6 0 3 8 2 6 2 6 1 5           6


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 7/26 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                   HGU7    September Copper

                      High Price:  306.3
                   Current Price:  287.2
                       Low Price:  277.7

                            Risk:  0.065
                     Opportunity:  0.131

                    (O/R) Ratio =  2.011


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart + 1
Nirvana Chart + 1
News + 1
Point & Figure + 1
Cyclicals - 1
Seasonals - 1
Internal System 1 - 1
Internal System 2 0
Third System - 1
Historic Range 0
Commitment of Traders + 1
Range/Volatility - 1
Level Table + 1
Other Factors + 1
Total + 3
Place 5 September Copper on a Buy Watch with stoploss @ -7.20 below the get-in point when recent price is represented as "287.20".
____________________________________________________________________________________________________________________________________________S.O.