- Copper prices on the retreat after hitting wall at 50% Fibonacci
- But head towards breakout from bullish pennant
- Near-term bias is neutral
Copper futures (HGCOP) confirmed the formation of a bullish pennant pattern after failing to post a higher high on Wednesday. Advances were rejected for a second time by both the 50% Fibonacci retracement level of the January-October 2023 downtrend as well as the long-term descending trendline.
The momentum indicators are somewhat mixed, underscoring the neutral picture until prices reach the end of the pennant for a possible breakout, which could still be weeks away. The RSI is pointing downwards but is holding above the 50 neutral level, while the MACD remains positively aligned with its red signal line even though it has begun to flatline.
Should the commodity remain under pressure, the 50-day simple moving average (SMA) is expected to act as immediate support as it converges with the 38.2% Fibonacci of 3.8358. A drop lower would see the 20- and 200-day SMA also coming to copper’s defence at 3.8095 and 3.7747, respectively.
Breaching the 200-day SMA would take the price below the medium-term uptrend line, potentially shifting the outlook to neutral. The focus would then turn to the January low of 3.7119, which corresponds with the 23.6% Fibonacci.
However, should the moving averages succeed in preventing a deeper fall, any rebound would first have to see off the challenge at the 50% Fibonacci of 3.9344. This would clear the path towards the 61.8% Fibonacci of 4.0330, which is where prices stalled in July 2023, and signal a continuation of not only the recent uptrend that began in October, but also of the bullish phase that goes all the way back to July 2022.
To sum up, prices will likely develop within the pennant pattern in the short-term timeframe. An upside break would boost copper’s bullish prospects in the medium term, while a breakout to the downside would signal a prolonged period of consolidation.