On Friday, February 5, the words "hammered," "catastrophe" "punished" and "plunged" were used to describe the recent action in Copper prices. As I write, the red metal stands at its lowest level in three-months.
As for why -- the following news item presents a widely popular explanation for the markets' decline:
"Copper suffers its fourth weekly drop in a row on concerns that US Job Losses and European budget gaps may stifle a global economic recovery. Commodities were trading too high relative to the economic environment." (Business Week)
Now they tell us. A little late, don't ya think? See, at the start of 2010, the red metal was red hot. Copper prices were orbiting 16-month highs amidst their largest annual gain in three decades.
Then -- the notion that copper was "too high relative to the economic environment" was missing in mainstream action. In fact, as the following early January 2010 news items show, the majority opinion was largely in favor of the metal's upside:
- "Despite continuing strength in the US dollar, copper achieved a new 16-month high. The bull run is expected to continue into January, thanks to speculative buying." (Reuters)
- "Copper led the [commodity] pack in 2009.The investment flow into commodities is expected to continue at the same pace we saw this year, which leaves prices nowhere to go but up." (Associated Press)
- "Copper prices rallied as a strike at world No3 producer Grupo Mexico renewed pressure on limited global copper inventories. The trend is still upward. This is more fuel for an already burning fire." (Daily Times)
YET -- on January 4, said "burning fire" went out. Since then, copper prices have fallen 16% to the multi-month levels we see today.
As for seeing copper's slide before its bullish flame extinguished -- there was EWI's chief commodity analyst and long-time Futures Junctures Service editor Jeffrey Kennedy. In the December 31 Daily Futures Junctures Weekly Wrap-up, Jeffrey presented the following close-up of copper that showed the five-wave rally since October on its last legs:
By incorporating the Wave Principles' Guideline of Equality, Jeffrey was then able to calculate a likely upside target for the dominant trend. This guideline states that when wave 1 is extended, waves 5 and 3 tend to be the same length.