A little over a months ago the price of copper was hovering above $2.92/lb., following a recovery from under $2.53/lb. For better or worse, trend-following has never been our favorite strategy. So instead of joining the bulls in anticipation of more strength ahead, we examined copper’s 2-hour price chart through the prism of the Elliott Wave principle. Here is what we found.
The chart revealed that copper’s rally from $2.5281 was a textbook five-wave impulse, labeled 1-2-3-4-5. The sub-waves of wave 3 and wave (iii) of 3 were clearly visible, as well. According to the theory, a three-wave correction in the opposite direction follows every impulse.
“Wave (2) can now be expected to drag copper prices down to ~$2.75 before the bulls return” was the conclusion we reached in the article this pattern inspired us to publish. Over a month later, the updated chart below shows what went as planned and what didn’t.
What didn’t go as planned was that instead of a simple A-B-C zigzag, wave (2) developed as an expanding flat correction. Wave B exceeded the starting point of wave A, before making way for the bears to drag the price of copper down to $2.7221/lb. in wave C last week.
Copper Bulls are Stronger than They Appear
According to the media, the reason for copper’s decline is the escalation of the trade war between the U.S. and China. In our opinion, copper was supposed to fall with or without the new tariffs, simply because there was already an Elliott Wave pattern in place.
Anyway, the chart above holds some clues about copper’s future direction that are worth discussing. First, the 5-3 wave cycle seems complete. The theory states that we can now expect the larger trend to resume in the direction of the impulsive sequence. In addition, wave (2) has already entered the support area between the 50% and 61.8% Fibonacci levels, where second waves often terminate. And last but not least, there is a strong MACD bullish divergence between waves iii and v of C of (2).
If this count is correct, there are plenty of reasons for optimism despite the rising tension between the two biggest economies. Wave (3) up should easily lift copper prices above the $3/lb mark in the months ahead.
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