Copper May Advance on `Head-and-Shoulders' Pattern: Technical Analysis

Copper prices may rise to $7,206.75 a metric ton after the metal formed a “head-and-shoulders” pattern, according to technical analysis by Standard Chartered Plc.

The attached chart shows a trend line in red tracing the head-and-shoulders and a separate short-term trend line in green that’s forming a triangle. An increase above the head-and- shoulders trend line may push prices to a May 28 high of $7,043 a ton and then to the May 10 high of $7,206.75, said Dan Smith, an analyst at Standard Chartered in London.

After breaking these two levels “we are off to the races and prices could go even higher,” Smith said yesterday by phone. “We have gone down and we are going to go in the other direction, which means trending higher,” he said.

Copper for delivery in three months traded at $6,729 a ton at 9:53 a.m. on the London Metal Exchange. The price has dropped 8.8 percent this year on the LME, pulled down by a stronger dollar and concern that Europe’s sovereign-debt crisis may hamper economies and crimp usage of metals. Gains by the dollar make metals priced in the currency more expensive in terms of other monies.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. The head-and-shoulders pattern occurs when prices form consecutive troughs, with the middle trough being either higher or lower than the other two.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Anna Stablum in London at astablum@bloomberg.net.

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