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COMMODITY REVIEW AND OUTLOOK
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(September 24, 1997) METALS: COPPER–SHORT TERM–Copper remains confused about its ultimate destiny. Depending on the trader queried, we will be up to our necks in copper, or copper will be selling like hot cakes due to strong demand. What does not seem to be in question is that supplies are not tight, nor does it appear they will be so in the future. Some traders believe that demand is strong enough to send the market back to the 120's in spite of the rise in copper stocks. One trader made the remark that while copper supplies are high, they often are at this time of year. There is talk of recent interest from Asia.
LONG TERM–On the LME, supplies have increased by over 130% in recent months, not a positive sign. On the positive side, U.S. demand is strong, but not enough to support higher prices. Keep in mind the perspective that the Chinese are said to be interested in keeping the market range-bound between 9500 and 110.00, as prices below 9500 are thought to be hurtful to the domestic copper producers, and conversely above 110.00 is too expensive for their needs. They are said to have plenty of copper, but they may wish to provide support if this market goes much lower.
RESISTANCE–Resistance lies near 9600-9620, 9775, 9885-9940, 100.40, 100.90, 102.25 and 104.50.
SUPPORT–Support basis December lies near 9550 (current level), 9440-9450, 9330-9350, 9150-9200, approximately 9000, the upper 8800's and near 8800.
RECOMMENDATION–More conservative traders might stay on the sidelines awaiting a clear opportunity. Aggressive traders could consider buying the December copper in the mid 9500's with stops of 100-200 points or under 9330. Objective is open, but a test of the 100.00 area is possible. It is conceivable that the market has put in a bottom or at least a tradable low. I suspect that selling has exhausted itself, and that at the least a solid rally is about to ensue. Be alert for a failure in the 9800-9900 area. The upside is unclear at this time, but it appears that a move to the 105.00 area is possible. However, if 9330 is taken out, it brings back the potential for a continued decline to the low 8000's. Aggressive option traders could buy near the money calls.
GOLD–SHORT TERM–Add an insomnia cure to gold's features.
LONG TERM–Other than the threat of central bank selling, no inflation, and too many competitors for international investment capital, there is little feature in the gold market at this time.
RESISTANCE–Resistance basis December lies at 326-327, 329 and 334.
SUPPORT–Support basis December 321-323 and 318.50.
RECOMMENDATION–If you find yourself either bullish or bearish on gold, consider options at this time. Volatility is so low that option values have declined quite a bit. Current action suggests the potential for a break to new lows basis Dec. Aggressive traders could sell a rally into the 326-328 area looking for 320 or so, possibly lower. Use stops of 2-3 dollars or over 331 or 332. Long-term bulls could consider buying calls on weakness, as premiums are down due to a lack of volatility.
SILVER–SHORT TERM–December silver had a small rally , no real feature. The preponderance of longs suggests that it is still vulnerable to more of a selloff.
LONG TERM–The reduction in COMEX silver stocks is providing some support, as is industrial demand, but action has been lackluster. Usage is forecast to grow. However, unless there is some trigger to move the market, it is likely that silver's move will be of limited duration, regardless of direction.
RESISTANCE–Resistance basis December lies near 478-480, 485-486, 490-493, 498, 505, 520.
SUPPORT–Support basis December lies near 463-465, 455-457, 450 and 443.
RECOMMENDATION–Aggressive traders might buy December silver near 463-468 with stops under 457 or 5-10 cents, and/or sell December silver in the mid 470's with stops of 5-10 cents. If you remain a long-term bull, consider buying December calls on pullbacks.
M. Steven Morgan
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