Chinese Growth Continues To Lift Copper Market

Fundamentals

Copper futures climbed above the key $3.00 mark on positive GDP news from China. The figure came in within expectations at 8.9 percent, which is the highest rate of growth in a year from the emerging giant. In addition to positive sentiment from the figure, Chinese officials had noted that inflationary expectations continue to climb on a monthly basis, which offered a lift to the overall commodity markets. Traders now have to question whether this rate of growth can continue, as the Chinese government has stimulus packages to get to this point. Copper analysts may be cautiously optimistic that prices can maintain current levels, especially if the US Dollar continues to weaken. Inventory levels are still relatively high, which may put some downward pressure on prices. Also, it looks as though China will have to go it alone on this one, as US housing starts and building permits failed to inspire traders and are showing signs that the recovery in the US housing market may be long and painful.

Trading Ideas

Given the high volatility of the Copper market, some traders may be better-suited staying on the sidelines if they do not have the capital or risk tolerance to hold positions. Or, as an alternative, some traders may choose to use Copper as an economic gauge for China and the global economy as a whole. Those who wish to trader Copper may want to first see how the market behaves near the 2.95 level. If the market is able to firmly establish support at this level, some traders may wish to enter into a long position with a protective stop at 2.89 and an upside objective of 3.15. The trade risks roughly $1,500 for a potential profit of $5,000.

Technicals

The December Copper chart shows prices breaking-out above recent highs near the $3.00 level. Ideally, traders would like to see several closes above this key level in order to confirm a breakout. The recent surge from 2.70 to this point may trigger some profit-taking, which suggests prices may come back down to test the 2.95 level in the near-term. Failure to hold 2.95 could result in the recent rally fizzling out, and Copper may find itself range-bound once again. A successful retest of 2.95 could result in the rally having some staying power.

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