Tuesday, May 13, 2008

What holds for Copper prices?

What goes for copper, goes for technology stocks (and the market as a whole). After what looked to be a triple top for the commodity in 2007, the ever weakening dollar helped push an upside breakout of $375. Broadening wedges are hard to spot and if this is what's at play then a move back to $250 would appear the best case for the metal.

However, as long as $375 holds then a run-of-the-mill breakout is to hand, with a projected target closer to $500 than $250.

Election years are traditionally viewed as bullish for the market. However, the previous two have been anything but. The protracted Democratic nomination doesn't help given it's only the warm-up to the main event. Wall Street hates uncertainty and it's by no mean clear cut who has the edge coming into November (irrepsective of who wins the Democractic nomination).

Political uncertainty and a strengthening dollar, both painted on the background of a weak global environment, suggests copper prices are likely to fall. This can be good and bad for technology stocks; falling prices imply falling demand (bad), but given this decline will likely be attributed to a rising dollar it should help technology products be more price competitive and help stimulate a recovery which would be good for the markets.

The problem with this is it just might not happen until November's fight is done and dusted.