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COMMODITY REVIEW AND OUTLOOK
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(November 21, 1997) METALS: COPPER–SHORT TERM–Copper hit its lowest level since the Sumitomo meltdown in June of '96. COMEX floor traders are still twitching from that occurrence. A report was issued by the Int. Copper Study Group, which confirmed ideas that copper would remain in a surplus for 1998. Some traders believe that copper can be a bellwether for the economy. If so, it sounds like it's playing taps from here. Physical business remains dormant, except in the U.S., where it is relatively healthy. Since June, combined supplies on the LME and the COMEX have increased by two-and-a-half times. Asia's absence from the market continues to suggest that the increased supplies of copper will have trouble finding a new home. In addition, continued stock market weakness, especially Asian, will weigh on the copper, as it implies a slower economy and lower usage. Copper is not too cheap, so don't buy it on that account.
RESISTANCE–Resistance basis Mar. lies near 8710, 8870, 8900, 9000, 9120, 9210, 9260, 9400.
SUPPORT–Support basis Mar. lies near 8400, 8230.
RECOMMENDATION–While the potential remains for a break well into the low 8000's, I find that I'm losing my appetite for this trade. My long-term target of 8200 is very nearly in reach, but the market is likely to fall prey to sudden and violent rallies. Long-term option traders might consider buying May calls in the “what if” category. Shorter-term traders should buy at the money puts rather than futures, as it won't take much to encourage aggressive buying if any good news appears.
GOLD–SHORT TERM–Concerns of central bank selling have surfaced once again. Fund short-covering has been noted in the recent past, suggesting that perhaps at the very least, they think it may have exhausted its downside potential. If silver continues to rally, it may provide support for gold.
RESISTANCE–Resistance basis Feb. lies near 306, 309-311, 313, 315, 318, 320, 323.
SUPPORT–Support basis Feb. is near 304-305, 301, 288, 283.
RECOMMENDATION–Rallies remain a sale, but traders might take a two-sided approach at this time. If aggressive, consider buying Feb. gold on a dip to 303-305 or so, looking for a rally to the 310 area, and if aggressive, consider reversing to the short side in that area. Use stops of 3-5 dollars. Option traders might consider buying Feb. or April gold calls if bullish, otherwise, stay on the sidelines.
SILVER–SHORT TERM–Ideas that central bank selling will reappear encouraged a spate of profit-taking in silver. There is talk of a squeeze due to tight stocks, but I suspect that is no more than talk or something to tell the reporters when they call. However, silver stocks are at a 12-year low, so that story may have some credence. Many analysts believe that silver's fundamentals should result in higher prices. Usage has increased every year for the last several years. Silver is beginning to appear to be more of a buy than a sale.
RESISTANCE–Resistance basis Mar. lies near 551-557, 565.
SUPPORT–Support basis Mar. lies near 530-533, 524-526, 516-518, 500.
RECOMMENDATION–Aggressive traders might consider buying Mar. silver in the mid-low 530's with stops under 524 or of 10-15 cents. Look for new highs, objective open. Use stops, as there is no “cost of production” figure that will support this market. More conservative traders could consider buying Mar. calls on pullbacks.
M. Steven Morgan
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