Copper & Silver: ‘Short term correction due’

India Infoline News Service | Mumbai |

Copper & Silver: ‘Short term correction due’

Copper:

Prevalence of countervailing forces has made it difficult for the market participants to bet on a one particular direction. In this regard, we have gloomy economic backdrop as a headwind and the monetary stimulus as a tailwind. Such tug-of-war between the opposing forces gives rise to the food for thought “Who will prevail”? In the broader term, we infer that the intrinsic variables will overplay the exogenous factors and effectively expect softening of prices. On price action, LME Copper prices are struggling to sustain above US$8,300/ton on a closing basis and the recent upside seems to be saturating. Price charts convey a probability of copper paring recent gains and moving below US$8,000/ton.

At the international front, LME copper prices are facing rigid resistance near $8,350 since the past 2 weeks, which also forms part of the congestion resistance zone shown in the chart. Price action in the last couple of sessions wherein prices spiked towards $8,380 and then declined, indicates that a corrective move could be underway. Such correction could extend towards $7,950, which is also the 38.2% retracement level for the rally from $7,200-8,400. On the downside, potential exists for a test of $7,800, which coincides with the medium term trend line.

Turnaround: Breach above $8,350 will bring fresh strength in the market and will lead the prices towards $8,800.

At the domestic front, prices are facing very stiff resistance at Rs449 since past two weeks and are gradually declining. Prices have not been able to break above Rs445 which is a new found intermediate resistance line. Currently, prices are trading below the 161.8% Fibonacci level of Rs437, with the next level being Rs428.5 (223.6% Fibonacci level). Potential exist for the prices to test Rs420-423 in the medium term. 

Turnaround: Close above Rs446-449 range would refurbish the positive momentum and postpone the expected weak tone. 

Price Outlook & Strategy

  Current price Trading range Sell Levels Target Stop loss
LME Copper US$8,290 US$7,800 - US$8,550 -- -- --
MCX Copper November Rs439 Rs425 – Rs450 440-442 431.5 – 427.5 451.2
Source: India Infoline Research, Prices as on 4th October, 2012

Silver
In spite of the recent impressive performance in silver prices, we are afraid that the white metal will not be able to sustain on its gains. Silver has the appeal of more an industrial metal rather than a precious metal, considering that the major component of demand comes from the industrial sector. Persistent economic woes and subdued manufacturing activity in China, US and Europe is not conducive for silver prices to move higher from here. With the monetary easing euphoria fading away, we infer that prevalent economic situation will take center stage and effectively lead to softening in prices.

Short term weakness, followed by medium term uptrend
COMEX Silver prices face stiff resistance at US$35.5/ounce and are not able to breach this level for the past few weeks. In the last one year, prices have not been able sustain above this level and hence can be seen to weaken in the short run. Such weakness could bring the prices towards $33/ounce and in extreme cases can lead towards $31.5. In case prices are holding above $33.5/ounce, the expected weakness stands truncated and an early recovery could be seen. 

At the Indian front, ever since the test of the psychological resistance level of Rs65,500, prices have attempted to test the same once again, but in vain. Price patterns during the past 3-4 sessions indicate retreating momentum which has the potential to transform into short term bearishness. The fact that, in earlier occasions prices have not been able to sustain above Rs65,500 also denotes the likelihood of declining trend in the offing. As depicted in the chart, prices have honored the medium term trend line resistance and turned lower. Immediate support rests at Rs61,850-61,920, a break below which could accentuate the fall towards Rs58,300 in the medium term. 


Turnaround: Failure to break below Rs61,800 could lead to a retest of the recent highs and postpone the expected weak tone. 

Price Outlook & Strategy

  Current price Trading range Sell Levels Target Stop loss
COMEX Silver US$34.8 US$32 – US35.5 -- -- --
MCX Silver Rs62,400 Rs59,000 – Rs64,400 62,500 59,800 64,200
Source: India Infoline Research, Prices as on 4th October, 2012


 

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