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Copper’s Selloff Not a New Bear Market

Copper fell by over 58% between February 2011 and January 2016. By late-2017 it looked like the commodity was finally out of the woods as the price rose to almost $3.30. Analyst were already anticipating even higher prices driven by an increased demand by the electric vehicle manufacturers and China’s economic growth. Alas, the market thought otherwise and as of this writing, XCUUSD trades below $2.75 after a spectacular selloff from $3.2959 to $2.6920 in the last five weeks.

According to the news, the sharp decline is caused by the trade war between the United States and China. We have another explanation and it also provides a clue about Dr. Copper’s next big move. Take a look at it below.
copper Elliott wave chart
According to the Elliott Wave Principle, mass psychology forms repetitive price patterns, which can be recognized on the price chart of financial instruments. Five-wave patterns, knows as impulses, indicate the direction of the larger trend. Every impulse, on the other hand, is followed by a three-wave correction in the opposite direction before the larger trend resumes.

Keep that in mind and take another look at the chart above. It shows that copper’s recovery from $1.9322 to $3.2978 can be seen as an impulse pattern, labeled (1)-(2)-(3)-(4)-(5), where wave (3) is extended. This means the current plunge must be part of the corresponding three-wave retracement in wave II/B. If this count is correct, wave II/B is already looking for a bottom, since it can be seen as a regular (a)-(b)-(c) flat correction.

In addition, a simple line can be drawn through the high of wave (1) and the low of wave 2 of (3). It served as a resistance when the price first touched it, but was then breached to the upside and turned into a support by the bulls. It makes sense to expect this line to deliver another bullish reversal for the start of wave III/C.

In conclusion, copper’s recent weakness might look scary or even terrifying, but the Wave principle suggests it is just a normal pullback within the larger uptrend, whose next phase should lift the price to a new major high, despite the ongoing trade war between the world’s two largest economies.

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