Copper's Parabolic Move Unstable
Updated
There is no doubt copper's move is substantial as chart chasers crowd on a few group think narratives:
- Inflation is around the corner. Is it? Headline inflation in the United States in 1.47 percent. To put that in perspective, it's down four percent from July 2008 highs of 5.4 percent. To add further perspective to that, inflation is cyclical. It has risen, from previously declining, into every U.S. recession (except two) is seven decades. Each of those bouts ended up in a deflationary recession.
- Copper prices, and the narrative of higher inflation, is coinciding with a much stronger DXY. Due to global central planning to weaken their respective currencies, the dollar has remained rather strong. Either the dollar plummets or copper does. Unless the greenback breaks through 92.50, the 2011 bull market continues higher, pending more Q.E. from the Federal Reserve.
- China is growing. Not really. Internal data suggests China is growing less than half of its official growth figure. Fiscal stimulus is a possibility, but the Communist government has a long-standing affective of pumping liquidity and generating fiscal deficits to inflate on asset bubble to another.
In a note from July 2013, I said "The excessive liquidity in China has led to a huge redundancy in investments and speculation, and this has contributed to excess capacity in both manufacturing and infrastructure. This inefficiency of channeling the free-flowing liquidity undermines China's development." This will continue. The People’s Bank of China has increased net liquidity to the financial sector by a staggering +2,022% year-to-date.
- The commodity burst has finally reached a bottom. Really? Too early to tell, especially if growth continues to slow.
- Price discrepancy is way out of wack. With a z-score on the daily and weekly of over 2.5, price will have to come down. RSI is at 87, while the stochastic indicator is highly overbought. Copper does have momentum on its side, but near-term could see a pullback to 2.30 to consolidate.
Note
Despite price spike, we are still constructively bearish.
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