Copper is trading below local support at $4/lb, but has so far managed to find pockets of buying interest ahead of $3.93/lb, the 50% retracement of the run up since late January. While the long-term outlook for copper remains solidly bullish, due to signs of structural supply tightness, the market has lost momentum in response to an 80% bounce in exchange-monitored inventories in London, Shanghai and New York.
While managing to trade sideways since the end of the Chinese New Year, the sentiment has been weakening amid signs of weakness in China where the scaling back of stimulus has been seen as one of the reasons behind the 18% drop in the CSI 300 during the past five weeks. Speculators meanwhile have been net-sellers of High Grade copper for the past four weeks which has brought the net long down to just 45k lots, an eight month low.
With this in mind there is a risk that continued liquidation of weak longs could see it retrace lower towards $3.88, the 50-day moving average, a level where tactical longs are likely to emerge with a stop below $3.80.