ChartWatch Markets: Copper smashes to new all-time high as iron ore threatens major breakout – here's what the charts say

In today's edition of ChartWatch Markets, we'll be covering the technicals for:

• Nasdaq Composite

• Iron Ore 62% (Front month, back-adjusted) SGX

• Copper - LME Official Cash

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Nasdaq Composite Index

Analysis

Hardly a chink in the armour of the V-shaped rally from 21898.

Down on the day – but we know the white body of the candle suggests at least some demand-side participation during the session. The close of 23276 is above both the session’s and 2-day’s midpoint of 23237-8. Still, there’s a whiff of an upward pointing shadow…

Who had control of the Comp's price action on Monday? Let’s just go with "about even-Stevens"!

What’s more relevant is: The rally from 21898 is pretty decent – so if last night is the extent of the supply-side’s ability to impact price (given there was a bit of “bad news” around) – then the demand-side appears suitably resilient in its reply.

I note the short term trend ribbon has reverted to up / light green. It will be critical to see it once again act as a zone of dynamic demand – and we may get a confirmation of this item tonight.

Very little change from yesterday’s analysis, as I continue to await confirmation the demand-side is back in control / the supply-side doesn’t have the ammunition or motivation to challenge them:

• The short term trend ribbon must begin to act as a zone of dynamic demand (i.e., a trough – and importantly a higher trough to 21898 – is set at or above the short term trend ribbon).

• Continued demand-side candles (i.e., white-bodied and or with downward pointing shadows) – particularly long candles with a high session close near 23570.

• Strong demand-side candles on elevated volume – indicating removal of latent supply in the system!

On that last point, I continue to note that volumes – albeit holiday impacted – are scant, meaning:

1. The market is prone to volatility in either direction (i.e., few buyers or sellers to get in the way of a motivated order)

2. We are yet to resolve the issue of latent supply (i.e., supply lurking in the system waiting to sell into higher prices). This requires the demand-side to trade with them = Elevated volume!

View

I can't confidently peg the Comp's price action as MOTN (More Often Than Not) expected to rise or MOTN expected to fall. ⚖️ Therefore, I remain comfortable at 1/2RP as my Risk Bucket 🪣 limit for now. (i.e., my personal allowable capital allocation limit (i.e., Risk Position) for my investments in US stocks is 50%).

Key levels

The next critical zone of demand is 21898 – below it, the short term trend is unequivocally down and the long term uptrend is likely under significant pressure = ⚠️ 23570-24020 is the nearest critical zone of supply – the Comp must at least close within this zone with a strong demand-side candle to confirm the demand-side is moving back into control of the Comp's price.

Iron Ore 62% (Front month, back-adjusted) SGX

Analysis

The last time we covered iron ore was in ChartWatch Markets on 25-Nov.

In that update, we noted its technical picture was “substantially improved”, but also that there remained insufficient evidence iron ore was ready to breach substantial overhead supply (“a wall of supply”) up to 105.35.

(Note that as the benchmark iron ore contract has rolled to a new month, the prices in my chart have been back-adjusted versus the last update. This is standard practice – as technical analysts we’re still focussed on the relevant points of demand and points of supply).

Monday’s long white demand-side candle with close at the session high is a strong confirmation of demand-side control. The below average volume suggests that the demand-side’s motivation is not being substantially impeded by supply (i.e., in terms of either motivation or size).

Potentially, the supply-side is saving their ammunition for 103.95-105.35.

I expect it will take considerable effort to dislodge them – and this means above average volume into that zone. Strong demand-side candles will therefore signal motivated and large demand, just as much a clearing of pesky latent supply.

A strong demand-side candle close above 103.95 would go a long way to convincing market participants this rally “could be the one”. A strong demand-side candle close within or above 104.60-105.35 would likely seal the deal.

In this instance, the next major point of supply is likely to be the 22-May 2024 major peak at 112.90. I suggest that if the iron ore price is trading around there, the prices of ASX iron ore stocks should be a little higher than where they are now!

That’s the best case scenario. We should also be mindful of the supply-side winning the battle at 103.95-105.35. If we see a growing prevalence of supply-side candles here (i.e., black-bodied and or upward pointing shadows), particularly those that push into the supply zone but then close back below it – history suggests the demand-side loses interest pretty quickly…

View

Monday's strong demand-side candle is sufficient for me to entertain increased risk on iron ore. This means my technical model allows me to either add or maintain risk here (i.e., +R / =R).

Key levels

There's a wall of supply between 104.60-105.35. I would be comfortable adding risk / +R on demand-side candles closing near their session highs in or above this range. The closest point of demand is the short term uptrend ribbon (presently 101-101.40). If the iron ore price closes below this zone, the short term trend is nuetralised.

Copper - LME Official Cash

Analysis

The last time we covered LME Copper was in ChartWatch Markets on 28-Oct.

In that update, we noted “A clean break from a multi-year base pattern with strong short and long term uptrends and price action.”

Much like today.

Also much like today, in that update I noted the two crucial ingredients for enduring bull markets:

1. FOMO = Fear Of Missing Out = Demand-side foresees higher prices… wants to get their cash to work

2. HOFU = Hold On for Further Upside = Supply-side foresees higher prices… doesn’t want to let their asset go… holding on for substantially more

Even better, when we’re in blue-sky territory, as we are now for copper – neither side is pegged to the concept of a potential “high price”.

Without the constraints of a historical price anchor in their minds... market participants now consider that any price is possible...

This when we get the best bull runs! 📈

View

As per my last update, I'm happy to stay the course on LME copper. My technical model allows me to either add or maintain risk here (i.e., +R / =R).

Key levels

10942-11067 is the closest zone of demand, ideally, the price should not close below here if the demand-side is in control of the Comp's price; alternatively, a close below the short term uptrend ribbon (presently 10770-10860) will nullify the short term uptrend = ⚠️