Scenario 1. Since 2020, the commodity market might have been going through a supercycle. Scenario 2. Copper could be undergoing a brief correction phase before retesting the lows of 2022. The catalyst for this scenario might be a recession expected to materialize in 2024.
In this article, we delve into the technical and fundamental factors that have contributed to copper volatility over a span of over three years. Lastly, we'll look at the possible progression of copper prices according to different scenarios.
1. March 2020: The Lows of the Pandemic
Pandemic containment measures caused a major economic contraction globally, leading to a significant decline in copper prices, which fell to nearly $2 per pound.
![Copper Futures: Lows of the Pandemic](https://www.dollarcontext.com/content/images/2023/07/1A-Copper-Low-2020-.png)
It’s worth noting that the formation of the bottom was characterized by a long black/red body and a sequence of elongated lower shadows at a key support area:
![Copper Futures: Low of the Pandemic in 2020](https://www.dollarcontext.com/content/images/2023/07/1B-Copper-Low-2020-.png)
2. April 2020–May 2021: The Extraordinary Upturn
From April 2020 onwards, the following factors contributed positively to the surge in copper prices:
- Assertive and robust monetary reactions from the Federal Reserve and other major central banks to stimulate the economy, and
- Exceedingly optimistic expectations concerning copper's demand and its crucial role in the clean energy revolution, driven by electricity and decarbonization.
In this context, the red metal initiated a remarkable surge that paused just above its all-time highs, around the significant resistance level of $5.
![Copper Futures: Rally from April 2020 to May 2021](https://www.dollarcontext.com/content/images/2023/07/2A-Copper-Uptrend-.png)
3. June 2021–February 2022: The Top
The copper market underwent a phase of lateral fluctuation. Indications of a possible peak included:
- The formation of a triple top around $4.9 (Conventional Technical Analysis).
- The appearance of three “irregular” dark cloud cover patterns (Japanese Candlestick Analysis).
The significant resistance zone in which these patterns appeared amplifies their significance as reversal signals.
![Copper Futures: Top in 2022](https://www.dollarcontext.com/content/images/2023/07/3A-Lateral.png)
4. March–June 2022. Reversal Confirmation
The reversal is confirmed with the breakout of the triple top formation. Interestingly, the descent halts at these benchmarks:
- 61.8% Fibonacci retracement, and
- 100% projection of the triple top range
![Copper Futures: Descent in 2022](https://www.dollarcontext.com/content/images/2023/07/4A-Copper-Decline.png)
5. From July 2022 Forward
Beginning July 2022, the market has seen a recovery in copper prices, a pattern that continues today. Unfortunately, making predictions at this point is challenging. However, in our view, there are a few probable outcomes that may occur moving forward:
- Scenario 1. Since 2020, the commodity market might have been going through a supercycle. Typically, commodity supercycles last for more than 8 years and result in huge price increases. If this hypothesis holds, copper would have undergone a correction phase from March to June 2022, before resuming the upward trajectory over a longer time span.
- Scenario 2. Copper could be undergoing a brief correction phase before retesting the lows of 2022. The catalyst for this scenario might be a recession expected to materialize in 2024. As indicated in the following chart, it's evident that the red metal's performance tends to deteriorate during times of recession (shaded areas).
![Copper and Recessions](https://www.dollarcontext.com/content/images/2023/07/5B-Copper-Recessions.png)
Source: Macrotrends
Finally, observe how the 100 Simple Moving Average (depicted in purple on the chart below) has historically functioned as a support/resistance indicator for copper. Currently, this SMA is acting as a resistance.
![Copper Futures: Rebound Since July 2022](https://www.dollarcontext.com/content/images/2023/07/5A-100SMA.png)