Copper is a key commodity that presents interesting opportunities for technical analysis, particularly through the lens of harmonic patterns. I foresee the potential formation of two patterns around the $4.80/$4.90 zone, should the price of copper break the resistance established on July 5 at $4.69. This level represent a significant barrier, with the potential to limit the formation of these patterns, making its breakout a crucial signal. Additionally, it is essential to highlight the ratios and historical characteristics that this metal has shown, which can contribute to more accurate projections based on repeating patterns over the past decades.
Higher-Degree Bearish Cypher Pattern
The first anticipated pattern is the “higher-degree” Bearish Cypher Pattern. This arises following a downward move composed of three waves, one of which is a corrective move that established the "B" point of the pattern, aligning with the resistance fractal formed on July 5 at $4.69. Interestingly, the formation of the "C" point lies slightly below the 127% Fibonacci extension, which is the default level for this point.
After the resistance, a fractal support was established at $3.92, and the next projected move points to the "D" point, which should form at the 78.6% Fibonacci retracement of the move between the "X" and "C" points, targeting $4.89. Once this pattern completes, the expectation is for a significant retracement that could bring copper prices back to the $4.50 zone, representing a correction of approximately 8% following the pattern's completion.
Lower-Degree Bearish Alt-Bat Pattern
The second pattern, the “lower-degree” Bearish Alt-Bat Pattern, focuses on the price action between the "B" and "C" points of the Cypher Pattern. The Alt-Bat is a variation of the traditional Bat Pattern, recognizable by its "M" or "W" shape. This reversal pattern usually forms at the top of a structure following a prior upward movement similar to the Cypher Pattern. However, instead of forming the "D" point at the typical 88.6% Fibonacci retracement, the Alt-Bat targets the 113% Fibonacci extension, projected at $4.80.
The choice of the Alt-Bat Pattern is justified by the fact that the price is currently in an intermediate zone, specifically around the 50% Fibonacci retracement near $4.54. The probability of retesting intermediate fractal resistance levels is high, particularly when considering the potential conclusion of a correction period. This could, in fact, pave the way for a retest of the May highs, formed at $5.16.
Potential Bearish Crab Pattern Formation (The Cup)
Beyond the patterns already discussed, a third possibility warrants attention: an additional upward movement in the medium to long term that could lead to the formation of a Bearish Crab Pattern. This pattern may develop if copper prices exceed the projected cluster zone of $4.80/$4.90, indicating that the next target would be the 161.8% Fibonacci extension, just above the May highs at $5.17.
It is expected that prices will retreat after the formation of the Crab Pattern. It's important to note that a "handle" must form following a retest of the May highs; only then can the Cup and Handle pattern develop. Should this pattern confirm, we anticipate a potential rally that could push copper prices to $6.21.
The copper market is at a critical juncture, with the potential for multiple harmonic patterns to shape its behavior in the coming weeks. Both the Bearish Cypher and Bearish Alt-Bat offer valuable insights into price movements between $4.80 and $4.90. However, if the price breaks this zone, attention should shift to higher levels, possibly forming a Bearish Crab Pattern with longer-term implications.
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Happy Trading,
André Cardoso
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