Large Scale Ascending Triangle in Copper

Sep 4, 2008: 12:36 PM CST

A reader asked me yesterday to look at a potential ascending triangle on the 3-year chart of copper and indeed that is the dominant structure of Copper prices and it’s definitely worth a second look.

Let’s take a look at the compressed weekly chart of Copper prices (Symbol $COPPER in StockCharts.com):

Ascending triangles are consolidation patterns, which often have an upside bias in terms of range expansion (breakout) expectations.  They don’t always break out to the upside, but that is the assumption.

At the moment, price is testing the lower rising trendline at around $330, and a doji has formed currently, but there’s a few considerations to analyze before getting ultra bullish or drawing any fast conclusions.

The $380 to $400 range provides the upper trendline for the pattern.  As expected, the momentum oscillator has been winding down to an equilibrium level (swings have been compressing and overlapping) which is consistent with the pattern.  A negative momentum divergence has also set in.

Let’s zoom the camera in on the weekly chart and look closer at some of these developments.

IF (and that may be a large “IF”) the lower trendline fails (the trendline is abundantly clear on this zoomed in scale), then the initial downside target would be the prior swing low at roughly $290.  Also, the 200 day moving average (currently just beneath $280) would likely rise to around the $285 level and would provide initial support should the trendline fail.

Price recently failed a test of resistance via the 50 week EMA, and it appears an EMA bearish cross is eminent.  Reference the end of 2007 for a similar set-up, which resolved to the upside.

The resistance at $400, and the current negative momentum divergence are evident as well on this chart.  There could be a battle to hold on to the $325 level.

Finally, let’s look at the daily chart for a little educational example using Fibonacci and resistance.

Copper has respected its 200 day SMA in terms of support, which has now been broken and confirmed as resistance.

I wanted to call attention to the classic “confluence” trade set-up at $355 in mid-August.  Price rallied up against a confirmed daily downtrend and retraced 38.2% of the July high to August low move, and this Fibonacci level corresponded directly with the 200 day SMA and 50 day EMA, which proved too difficult for buyers to push above.  As such, an extremely high probability, low risk short-sell trade set-up here.

Multiple sources of confluence often set-up excellent trade opportunities with low-risk entries in either direction.

Nevertheless, the current structure has price forming a positive momentum divergence and a potential “double bottom” pattern after a large range bar and gap yesterday.  Recall that the weekly ascending triangle lower trendline comes right at the $325 level, so it will be interesting to see if price finds support here and reverses back to the upside.

Let’s continue to watch these levels for signs of continuation or reversal, and for more potentially good examples of trade set-up and management.

1 Comment

One Response to “Large Scale Ascending Triangle in Copper”

  1. Mark Says:

    Thanks Corey.