Trading strategies for Copper and Lead by Bhavik Patel of Tradebulls Sec

Copper prices are far from 20 DMA and, historically, we have seen mean reversion happens when prices run too far from 20 DMA

Intra-day volatility (VIX) is increasing in precious metals. On Tuesday, gold fell from Rs 53,999 to Rs 51,800 in a span of 30 minutes before recovering back to Rs 53,825. Silver also fell around Rs 6,200 in 30 minutes before recovering by Rs 5,700. The rally in gold and silver this week is helped by weak US Dollar (lowest since 2018) and 10 YR US Treasury yield which is trading around lowest in a week. $2000 seems to be strong hurdle for gold and if prices close back to back above $2000 this week, then the rally will be enough to test $2089 resistance. But if gold fails to close above $2000 this week, we may see another potential decline.

US lawmakers remain locked in a stalemate over a potential new coronavirus stimulus deal and any breakthrough in reaching another stimulus deal would led to decline in precious metals. Any positive development from Vaccine front would also boost risk sentiment and keep pressure on gold prices. As long as yields stay below 1%, gold prices will remain positioned to the upside. Bouts of volatility and pullbacks in gold prices will occur time to time.

After smart recovery from silver, resistance still remains around $29. It needs to clear the hurdle of $29 for making life time high. Silver will continue to rise until central banks continue to cap potential upside for bond yields. Bouts of volatility and pullbacks in silver prices will occur time to time and in short term, we feel there are more chances of downside. We recommend long position holders to remain cautious.

Bullish sentiment, however, cooled off on Thursday after API reported modest draw in Crude oil inventories. 3200-3250 is the supply zone in crude oil prices where selling pressure comes while finding plenty of buyers in range of 3100-3030. Crude is stuck in range for since start of this month. OPEC meeting will also keep investors on edge; although we feel it might be uneventful.  US housing data suggest economy is reviving which is positive sign and also US shale production has leveled off, giving bullish sign for crude. The compliance by OPEC was nearly 97% in July which is also positive sign for crude oil. The undertone is still bullish, so we would be looking for buy on dips.

Price of Natural Gas has increased but it might not sustain in long run as US natural gas storage situation has worsened largely due to falling cooling demand and rising production. Natural gas storage is set to reach the highest level in recent years by mid-September.  The current rally is expected to get exhausted around 190-195. So any traders holding long positions should be looking to book profit in that vicinity.

Recommendation:

Sell Copper | TGT: 515 | Stop loss: 534

Copper, on daily scale, made ‘harami’ candlestick pattern which is a reversal formation. RSI_14 also is showing negative divergence on daily scale indicating that bullish momentum may be under threat. Prices are far from 20 DMA and historically we have seen mean reversion happening when prices run too far from 20 DMA. So we expect prices to retrace around 515 and that is why we recommend short with stop loss of 534.

Sell Lead | TGT :152 | Stop loss: 159

Lead has made ‘Shooting star’ candlestick formation. It is in overbought zone as RSI_14 is around 70. The occurrence of shooting star in overbought zone gives stronger significance for reversal pattern. Like Copper, there is negative divergence on daily scale in Lead. Since July, Lead has taken support around its 20 DMA and this time also we expect lead to test its 20 DMA which comes around 152.50. So sell lead at current market price with expected target of 152 and stoploss of 159 closing basis.

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Disclaimer: Bhavik Patel is Sr. Technical Analyst (Commodities) at Tradebulls Securities. Views are personal.