by Nico Isaac
Updated: June 16, 2015
(Editor's note: JJC, COPX and CU are three of the most popular copper ETFs, designed to track price fluctuations in the market itself and copper-related stocks.)
Today I learned that, as an alkaline metal, copper is a natural sterilizer; it whacks the heck out of bacteria and viruses.
But -- as a highly traded commodity, copper prices are totally defenseless against getting whacked!
Case in point: On Tuesday June 16, Comex Copper plunged to its lowest level in three months. As for what caused the red metal's rout -- well, that depends on who you ask. The mainstream diagnosis listed three main fundamental factors, i.e.:
1. The June 14 Greek bailout stalemate: "Copper tumbles to 3-month low... after last ditch talks between Greece and its international creditors ended without an agreement on a cash-for-reforms deal on Sunday night."(Investing.com)
2. A pair of negative June 10 economic reports from China, the world's largest copper consumer: "Copper continues to slide on weak China data" including a 16% drop in new housing starts and "the slowest increase in fixed-asset investment in 15 years." (Financial Times)
3. A June 10 bearish supply report: "Copper dives as stockpiles grows 90% in the past year. The supply and demand fundamentals aren't supportive." (Sydney Morning Herald)
All three factors seem perfectly bearish. Is there anything wrong with this reasoning?
Well, think of it like this. Using these news and events to explain copper's sell-off is like doing a reflex test on a comatose patient. There may be flinches and flutters in the immediate moment. But it doesn't explain how the patient fell into a coma in the first place. In other words, these bearish factors only rationalize the copper sell-off -- after the fact..
Check it out. This chart of copper shows that the recent rout began a month ago, on May 15. Prices have been collapsing ever since then. YET -- every single one of the fundamentals cited above occurred within the last week.
So, that brings us back to the original question: Why did copper prices fall into their bearish coma -- on May 15?
Well, here we turn to our Metals Pro Service analysis of copper. On May 13, Metals Pro Service warned that copper's uptrend was looking "toppy" and wrote: "The outlook is bullish [but only] while price holds above 283.10."
On May 15, copper prices slipped through cited support to confirm the bearish change in trend. Here, the May 18 and May 19 Metals Pro Service intraday updates guided subscribers through the coming reversal:
"Comex Copper popped up briefly, but the outlook remains down through 288.80 while price holds under 293.15-294.90."
"Comex Copper had been looking toppy for a few days and Tuesday's slam looks pretty bearish. 2.90 looks like it should be more than enough to keep a lid on this market which has significant but unknown downside potential... as of right now a double zigzag looks complete but requires a breach of the last ((X)) wave bottom of 2.6475."
So, why did copper prices fall into their bearish coma -- on May 15? Now you know: The market wasn't taking its cues from China, or supply and demand data, or even Greece. The latest data on all three of those fundamental factors only came after the sell-off had begun. It was following its Elliott wave script that got the ball rolling.
And, according to Metals Pro Service, that script continues to call for further decline "while the recent peak holds."