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Research... April 5th, 2019 by John Gross

If we knew what it was we were doing, it would not be called research, would it ? Albert Einstein

That pretty much sums things up – eh?

We continue doing ‘research’ in an attempt to understand why markets do what they do, and to give us some hint about what to expect in the future.

Fundamental analysis focuses on supply and demand and resulting inventory levels, while technical analysis looks at support and resistance lines; moving averages, the relative strength index, and stochastics, among other things.

While we typically lean toward the technical side for guidance, at the moment, fundamental factors have caught our attention.

That is to say, the recent increases in copper inventories prompted us to take a closer look at significant changes in total inventories (Cx, LME & SHFE) over time, and their impact upon prices.

As you can imagine, it is not a pretty picture, but it is informative.

To avoid getting caught up in ‘the noise in the numbers’, we confined the analysis to increases of 100,000 mt or more in any given month.

Interestingly, over the past fifty years or so, since 1970, the first increase of 100,000 mt or more happened in 1998, and since then, we have seen 10 more occurrences.

They have ranged from +102,000 mt to +208,000 mt, and with just a few exceptions, prices were considerably lower in the months following the increases.

Our concern right now, is that although we have not seen a monthly increase of 100,000 mt over the past year, we have nevertheless had a gain of 130,000 mt over the past two months combined. Is there more coming? Who Knows?.

So, although we had been leaning toward higher prices for a variety of reasons recently, our outlook is now tampered with caution in the short term.


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