Copper breakout paves the way for 2Q gains

Thursday’s snapback gains seemed to be a mirror opposite of Wednesday’s trading, but look to have decidedly broken the near-term 6-7 day period of consolidation to the upside. Overall, the act of having exceeded 4133 does not change the near-term trend too dramatically, and SPX 4200 remains the most important area to watch carefully in the days ahead.

Healthcare, Technology, Communication Services, and Discretionary all rose more than 1%, while defensive sectors like REITS and Utilities lost ground. Importantly, the minor consolidation in Technology cannot be officially called “over” following Thursday’s rise.  Areas like Semiconductors have lagged lately and remain in need of some pattern improvement.

Market breadth was positive on Thursday, albeit not extraordinarily so, at just over 2/1 positive.  However, seeing Technology recover from recent weakness looked to be a minor benefit to stock indices. 

The big developments on Thursday centered on the breakout in the Euro and Pound Sterling to new monthly highs, along with a breakout in the price of Copper.  These all look likely to trend higher in the weeks to come along with continued gains in precious metals.

Three possible negatives are important to mention, which need to be monitored, regardless of if prices might seem to many like they’ve broken out.  First, leading sectors like Transports and Semiconductors have lagged lately, and Thursday’s gains didn’t really change that.  Second, market cycles for SPX and NY Composite look to peak between mid-to-late April, and turn down into mid-May.  Third, short-term gauges of sentiment have begun to grow more positive again, after having bottomed in bearish territory back in mid-March.

The overwhelming positive, however, remains the degree that breadth has recovered sharply on a broad-based manner, despite some stalling out in Technology.  Other sectors like Financials, Healthcare and Industrials, not to mention Communication Services, have made some very good headway in recent weeks, and have largely helped breadth to continue rising, despite stocks like AAPL 0.04%  having consolidated.  Overall, breadth has improved since mid-March, not deteriorated.  That’s a positive despite “the crowd” getting louder and louder about the possibility of a recession and fretting about poor earnings and a correction.

I suspect that it should prove difficult for Equities to stall out and turn lower with any kind of force or duration if the US Dollar and Yields are both trending lower. Cycle composite projections for both suggest an upcoming bounce could materialize in May.  At present though, this seems early and I suspect both DXY and TNX move lower into late April.

Copper breaking out of multi-month downtrend

Copper’s rally above $4.12 is thought to be a near-term technical breakout, which should lead to a coming rally to test and exceed mid-January 2023 highs.

This rebound is directly occurring with the combination of a big decline in the US Dollar along with a significant recent liquidity injection by the People’s Bank of China (PBOC) on 4/11/23. Both are thought to be possible reasons to spur on a rally, and the reopening of China is thought to be particularly important from a non-technical perspective as to a reason why Copper might rally despite a stalling out in the US Economy.

Overall, the entire pullback from mid-January 2023 into March proved to be quite “corrective” in nature and was not technically indicative of a decline which could have any real staying power.

Additionally, mid-March lows occurred right near a 50% retracement zone of support of the prior September 2022-January 2023 rally.  Additionally, this area represented a 38.2% Fibonacci retracement zone of the prior rally from last Summer.

Cycle composites show the start of strengthening in Copper in the weeks to come, and it’s thought that this week’s advance is important and bullish for the possibility of further gains.

Initial resistance should materialize near $4.35 while weekly gains above that level would jumpstart a larger rally back up to test last year’s peaks just over $5.00 in Copper futures.

Overall, stocks like FCX 4.36%  look attractive technically as a way to possibly play this Copper rally as well as ETFs directly related to Copper, such as the Global X Copper Miners ETF (COPX 4.68% ).

Only a decline back under $3.926 would postpone this rally, and this is not expected in the near future.  This week’s breakout should extend into late May/June before facing resistance.

Copper cycle turns up sharply into July and then December

Copper’s cycle composite turns back up sharply in April, and likely trends up until the month of July before settling.

Key weekly cycles which have proven important to Copper include the 45 week cycle along with a 180 week cycle.  When combining 3-4 other cycles which are harmonically related to make projections, we see that prominent lows happened back in 2009, 2016 and also this year, 2023.  Meanwhile, prior peaks happened in 2008, 2014 and 2021.

Overall, cycles look bullish for Copper between April into December of this year, albeit with a minor peak in July.  Technically, Copper looks attractive based on this week’s move technically and higher prices look likely.

Euro and Pound Sterling both broke out higher on Thursday

Finally, it’s worth pointing out that the US Dollar has begun to turn down quite sharply vs. most of its major peers, which conversely translates into strength in currencies like Pound Sterling and the Euro when measured in Dollars.

Daily charts of both Euro and Sterling made meaningful short-term breakouts on Thursday, which should steer both of these higher into May before peaking.

Overall, this could give some life to Emerging Markets and commodities, and it’s thought likely that the spot Euro (EURUSD), shown below, likely rises up to $1.126 without too much trouble.

Once more signs of the US Dollar bottoming start to become present, and/or peaks in Euro and Sterling, one might suspect a Dollar rally should be in store for May and/or June.  However, at the present, this move in the Euro appears quite bullish and I’m expecting further upside follow-through in the days ahead.