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Copper extended. China compresses

The front month of Comex copper made a top extension on Monday this week. This contract is now 'in delivery' so we had ignored it - hence the late notification of this signal. The contract still trades reasonably actively, so the signal is 'good' so let's look at what it means:

Copper extends

Copper has fallen from $4.80 per pound in early 2011 to these levels seen here. Prior to that it rose from much lower levels where as recently as the early 2000s it traded in a range of 60-80 cents per pound. This was too low to encourage much new supply so when China entered the world economy, this new demand pushed prices very high:

Monthly copper

New mining and smelting capacity was planned as soon as it became apparent that these higher prices were here to stay and that extra supply has been developed and is producing lots of copper. There was a long lag between the stimulus of high prices and the arrival of new supply and this has produced a big downswing in price that the producers erroneously (and predictably)  blame on falling demand. The problem is the reverse - too much supply and this makes it analogous to the oil market, although for different reasons. We predicted this in our video made two years ago.

The oversupply of copper remains. This little rally (which has now extended) is unlikely to last and prices probably haven't fallen nearly far enough to correct the over-supply. It is possible that prices may even fall back toward $1 before this process is over, so we would advise taking short positions now.

In other news, one of the China indices that we follow has just compressed at a daily scale. This means that a new move is coming and although we can't tell which way we do know that the Chinese stock market will still fall about 20% from current levels to finish correcting the bubble that inflated and burst - these always return to their starting point. If this next move is downward then that corrective process is almost over:

China daily comp