Aluminium, copper in medium term uptrend

In this week's dissector we take a close look at two base metals, aluminium and copper. Since both these are internationally traded commodities, their trend is determined by the movement of their prices in the international market. Spot prices of aluminium and copper traded on London Metal Exchange (LME) is considered for this analysis.

LME spot price for aluminium closed at $2,567.5 on Friday. The spot price is quoted in USD/MT for both copper and aluminium. LME copper spot ended at $9,886.5.

Aluminium long-term

Aluminium recorded an all-time high at 3,495 in December 1988 and was on downtrend until it marked the low of 1,032 in November 1993. Thereafter, it traded between 1,032 and 2,147 until late 2005. The commodity conclusively broke through its key long-term resistance in the band 2,000 and 2,150 in late 2005 and rallied higher. However, global recession made it reverse lower 3,292 level in July 2008. This decline made it penetrate through its key support at 2000 and fall to the next significant long-term base (2001 trough) around 1,250 in March 2009.

Since then, the base metal has been on a long-term uptrend , supported by the recovery in global economy and revival in demand. However, LME Aluminium spot is currently testing its crucial long-term resistance band between 2,400 and 2,600. Its 61.8 per cent Fibonacci retracement level of its prior downtrend also occurs at 2,513 which is with in this resistance zone. As long as the metal hovers above 1,900, the uptrend stays in place. Strong close above 2,600 can lift the base metal higher to 2,800 and then to 3,150-3,200 range in the long-term. On the downside, tumble below 1,900 will drag LME Aluminum spot to 1,700, and then 1,500.

Medium-term

It has been on a medium-term uptrend from its June 2010 low of 1,826. LME Aluminum spot is trading well above its 50-day and 200-day moving averages and its up trend-line is in tact. Move beyond 2,600 will reinforce bullishness and take the metal higher to 2,800 levels. Immediate support is at 2,400. Current up trend remains in place as long as the commodity trades above 2,210 level. Only a strong dive below this level will mitigate the uptrend and pull the commodity lower to 2,000 and to 1,900 in the medium-term.

Copper long-term

LME Copper spot recorded its all-time low at 1,295 in 1986 and it broadly consolidated sideways in the range between 1,295 and 3,200 till early 2005. It broke out of this consolidation phase and accelerated higher until it peaked out at 9,000 levels in June 2008. Subsequently, LME Copper spot started to decline and it retraced the entire up move recorded between 2005 and mid-2008. It found important longer-term support in the 3,000 and 3,200 band in December 2008 and bottomed in that region.

Long-term trend is up for Copper spot since then. It emphatically broke through its long-term resistances at 8,000 level in October 2010 and 9,000 level in January 2011. Nevertheless, the copper spot is currently facing difficulty in moving above its key psychological level of 10,000. Further, the weekly relative strength index is displaying negative divergence implying weakening in bullish momentum and short to medium-term trend reversal is on the offing. Inability to move above 10,000 in the near-term will result in the metal reversing lower to its immediate support level of 9,000.

A fall below this level will pull it down to 8,000 levels in the medium-term. However, a sideways consolidation between 9,000 and 10,000 would be healthy from a long-term perspective and will signal the possibility of a break higher to 11,900 and 12,900. As along as it trades above the long-term support band between 6,000 and 6,250, the up trend remains in place.

Medium-term

Medium-term trend is up from its June 2010 low of 6,156 levels. Decline below 8,000 will negate this down trend. Immediate supports are at 9,260, 9,000 and 8,600. Resistance is at 10,180 (recent peak). Close above this level will take the commodity to new highs. On the other hand, strong decline below 8,000 will imply medium-term down trend and Copper spot can decline to 7,300 or 7,000.

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