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May copper is positively positioned in the early going today. With a weaker Dollar and generally up bear macro economic views, the bull camp has more ammunition than the bear camp. Limiting the upside in copper are beliefs that Chilean production won’t be seriously derailed because of the quake. While we can’t deny some upside action today, we are uncomfortable chasing copper prices higher off the current macro economic view. However, May copper will probably see some noted support off the even number $3.40 level, but we wouldn’t be surprised if the private jobs readings serves to temper the bullish attitude a bit in physical commodity markets later this week. On the other hand, some traders are taking notice of a small number of daily LME copper stock declines and suggesting that is the beginning of a pattern and that is another example of the market spinning marginal developments into a positive event.

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With a slide below a series of key technical points on the charts overnight and a downshift in the global macro economic recovery view recently, we have to leave the bear camp in control of copper prices. With a decline in Chinese January refined copper imports seen overnight, the copper market would seem to be getting both internal and external bearish fundamental news. With a slide below the $3.20 level seen in March copper prices early this morning, we see little in the way of support on the charts until the $3.1490 level. In fact, unless the copper market can come away from the new home sales report this morning and the Bernanke testimony with a layer of fresh optimism, we can’t rule out a continued slide down to consolidation support down at the $3.10 level. Aggressive traders can be short, but one should probably tolerate any trade in March copper back above the $3.20 level.

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An improved global macro economic outlook and a slightly weaker US Dollar appear to have given the copper bulls the initial edge today. With the Chinese on an extended holiday and the copper trade seeing a very minor labor orientated supply side threat overnight, it is clear that the bull camp has more ammunition than the bear camp. However, the copper market did see some negative supply side news late last week and with the weakness see at times in the US equity markets last Friday, the macro economic optimism today seems somewhat surreal. However, seeing the Greece debt situation put under control for 30 days seems to have given the bull camp an added measure of confidence. In fact, seeing some very impressive earnings news from Barclays overnight has clearly added to the macro economic bullishness and if the scheduled US numbers can add to the bullish look on the economy, there might be little to prevent the March copper market from rising back above the even number $3.20 level. The Commitments of Traders Futures and Options report as of February 9th showed the Non-Commercial and Non-reportable combined position to be net long 11,897 contracts, which was a reduction of the net long by 6,594 contracts from the previous report. Therefore the copper market shouldn’t be held back by an overbought technical condition today.

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Optimism in the copper market had been running exceptionally high since the start of the year on expectations for industrial metal demand to recover in tandem with an improvement in the global economy. A good portion of the gains in copper leading up to the January high was based on expectations that China’s voracious copper demand would remain robust this year, while rising investor risk appetite tied to the weak Dollar also provided significant price support. But there have been a few fundamental, economic and political shifts over the last month that have changed the mood. We see a strong enough change in sentiment to suggest more of last year’s premium will be pulled out of the market and leave May futures vulnerable to an eventual test of the $2.85 price level.

Perhaps the biggest factor impacting the trend change in copper has been China’s move to tighten bank liquidity, that has escalated concerns that copper demand will soften as China’s economy cools. As there seems to be growing speculation that China will have to tighten interest rates even more aggressively during the year, the market is beginning to price in a lower demand outlook from Asia, and that could end up being a longer-term weight on the copper market. With most of the economic news in January coming in soft, it still doesn’t appear that the pace of recovery in the US economy, at least in the key copper industries of construction, transportation and machinery, will be strong enough this year to support copper prices at these inflated levels.

With the copper market in the midst of scaling back demand expectations, we suspect that it will feel a strong impact from high supplies. Copper warehouse stocks at the LME have seen a steady rise over the last several months, recently reaching a one-year high. This also raises doubts over actual copper demand. The Dollar is currently in a fairly convincing uptrend, being supported by a variety of factors, and this could be another bearish influence for copper over the near term. We also think traders shouldn’t underestimate the bearish impact from the harsh political regulatory climate. The government’s move toward imposing tighter position limits and the Obama Administration’s push to restrict proprietary trading by banks could certainly change the investment landscape and would likely have a negative impact on copper prices as well.

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OUTSIDE MARKET DEVELOPMENTS: While a number of international equity markets managed to bounce overnight, one doesn’t get the impression that global economic sentiment has actually improved. In fact, the Dollar seems to have remained in favor, in the wake of ongoing fears toward the Greece financial condition. However, the markets did see a rather robust UK house price gain overnight, but that news might have been offset by surprising comments from Trichet, who suggested that the risk of a global depression was underestimated. However, economic sentiment might improve temporarily this morning in the wake of the US 4th quarter GDP reading. In fact, Obama early in the week hinted at an improvement in the US GDP report, but the trade already seems to have baked in a strong US GDP report for this morning.

GOLD MARKET FUNDAMENTALS: While the gold market seems to remain focused on demand prospects, the track of supply side news this week seems to have generally favored the bear camp. Fortunately for the bull camp news of a rise in Chinese gold production this week, was offset by news of a jump in Indian gold imports. However, the gold trade has to be concerned about residual strength in the US Dollar, as the Dollar managed yet another new high for the move early this morning and in the process the Greenback reached the highest level since September 1st. While the trade is generally anticipating a strong US GDP reading this morning, one would have to think that the market has already factored in a large portion of that type of result. The bear camp will point out that April gold remains below the 100 day moving average of $1,088.70 into the opening today, while the bull camp might try to play up the strong leap in UK house prices and a slightly positive early track in the US equity markets. For the gold market to benefit from higher equity prices today might require equities to maintain higher prices all the way into the close today, as rallies in stocks this week have been fleeting events.

SILVER MARKET FUNDAMENTALS: While May silver has managed to recover from the low forged yesterday, the bull camp would seem to have very few themes at its disposal. Clearly silver saw some pressure this week off a growing disappointment in the pace of the US economy, and those views also seem to have been enhanced by a very confusing political environment and by noted declines in US equity prices. Like gold, the silver market also seemed to be partially undermined by the resurgence of concerns toward the Greece situation. Furthermore, silver also seems to have be weighed down by noted weakness this week, in a host of physical commodity markets. In conclusion, the silver bulls appear to need something very positive from the US GDP report this morning, but the question is whether or not macro economic optimism will be sustained after the GDP reading is absorbed. It is also possible that a strong US GDP reading could lift the Dollar further this morning and that could serve to limit the benefit of economic optimism in most physical commodity markets.

PLATINUM: With a partially oversold technical condition and hopes of some positive news from the US economic report front, we have to give the initial edge to the bull camp. Therefore close-in support is seen at $1,500 today and we can’t rule out a rise back to $1,526. However, with a slack economic outlook still generally in place, traders should not shift back into a full bull mood.

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The copper market remains vulnerable to further corrective action unless the US equity market manages to totally shake off the negative sentiment that was present at the end of last week. However, with the Chinese copper market managing a bounce last night and the weekly Shanghai copper stocks last week showing a moderate decline, the copper market should be able to find some fundamental support for prices at slightly lower levels. On the other hand, with choppy equity market action, expectations of weak US economic readings today and another significant rise in daily LME copper stocks seen overnight, the bear camp in copper does seem to maintain an edge into the early Monday trade.

We see initial support and a potential target in December copper down at $3.0515, with similar support in March copper seen down at $3.0775. In fact, with news of rising Chinese copper production seen overnight and a series of slack US NAPM readings also due out this morning, we have to give the bear camp the initial edge this morning.

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OUTSIDE MARKET DEVELOPMENTS: While the UK saw a rise in nationwide home prices overnight, there doesn’t appear to be a definitively up beat view toward the global economy in place this morning. In fact, the market saw lower Euro zone price readings, softer German retail sales figures and a sharp slide in Japanese housing starts and that would seem to leave a slightly less up beat macro economic view in place than was present in the prior trading session. However, the Dollar action wasn’t definitive and therefore the impact on gold and silver prices from the currency markets early this morning is mostly limited. The market is seeing weaker initial equity prices and that might be considered a slight negative to the precious metals markets. The US will present Personal Income and Personal Spending readings this morning and the expectations for those readings are relatively benign. The trade will also see an important inflation reading from the US PCE index but with expectations calling for only a half percent gain in that reading, the metals markets probably won’t come away from the news with a huge inflation reaction. There are also some regional purchasing manager’s reports out later in the morning trade today, but the overall expectation today seems to be that the US numbers aren’t going to offer up anything impressive or surprising.

GOLD MARKET FUNDAMENTALS: While the direction of gold prices recently has seemingly been trained on the outlook for the US and global economies, the gold trade continues to see ongoing developments from an anticipated minor sale of Russian gold. The trade also saw a series of higher gold production figures from some key miners overnight, but that news doesn’t appear to be applying distinct pressure to gold prices. On the other hand, if the outlook toward the economy deteriorates again it is possible that the bear camp might try to play up the news of rising physical gold production. Clearly gold has behaved like a physical commodity this week, by falling sharply in the face of weak numbers and weak equities at the start of the week. However, the gold market did manage to rise sharply yesterday in the wake of favorable US numbers and very favorable equity market action. On the other hand, choppy to weak international equity market action overnight and somewhat slack international data flow overnight might serve to increase the importance of the US number flow later this morning.

SILVER MARKET FUNDAMENTALS: The bulls will tout December silver’s capacity to rise above the prior session’s high, while the bear camp will suggest that the silver market was unable to hold that pulse up attempt. With equities showing initial weakness and copper prices also under a bit of early pressure, the bear camp would seem to have an edge in the outside markets category. However, the Dollar action is mostly nondescript and unless the US numbers manage to offer up something slightly better than expected, it would not appear that the broad based economic optimism that was seen in the prior trading session will become a dominating view today. Nonetheless, the sharp recovery move in the prior trading session probably took away some of the bear’s confidence, that was built into the silver market early in the week. For the time being, the direction of silver prices might be largely influenced by the direction of US equities, as the scheduled US data today isn’t first tier data and the expectations for the data are pretty nondescript.

PLATINUM: Like gold and silver prices, it would seem like platinum over reacted to the favorable shift in economic sentiment. While we don’t expect to see an aggressive slide in platinum prices today, the path of least resistance might be set to point downward in the wake of nondescript US data and initially weak equity prices. In short, without a surprise bullish economic development, we see a bit of back and fill action in the platinum market today.

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The copper market has not been a precious metal market over the last two weeks and therefore the action in the Dollar should not be a major negative element for the trade. In fact, we have to think that the copper market in general is cheered by the macro economic news of better employment in Australia and Canada, soaring Chinese GM auto sales and also because of a noted decline in weekly Chinese copper stocks. Shanghai stocks fell 7% this past week, but initial Dollar gains overnight have put some temporary pressure on copper prices overseas. Shanghai copper stocks came in at 89,822 tonnes, down 6,897. After a nominal setback in prices, perhaps back down to $2.76, we suspect that copper will find solid support. At least in the near term the $2.8040 level appears to be some form of solid resistance, and therefore a close back above that level today after some initial weakness might be considered quite bullish for the market next week.

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OUTSIDE MARKET DEVELOPMENTS: With the precious metals markets at times recently becoming almost exclusively focused on the direction of the Dollar, it isn’t that surprising to see the noted weakness in gold and silver prices into the early US Monday morning opening. While the precious metals markets have lessened their focus on the direction of equity prices recently, it seems like the weakness in equities overnight has also contributed to the bear case in the precious metals markets. With a number of foreign markets closed overnight (due to holidays) one could attribute part of the overt weakness this morning to thin trading conditions overnight. However, given the conclusive pattern of weakness in global equities and the noted strength in the Dollar, the net impact of outside market action this morning clearly seems to favor the bear’s camp. With a Conference Board leading indicator report the only scheduled US report due out today, the markets might not see enough fresh news on the economic front to alter the initial bias. It does seem as if some traders are concerned about an upcoming FOMC meeting later this week and that issue also seems to be favoring the bear camp in the metals markets.

GOLD MARKET FUNDAMENTALS: One might have expected talk of a Chinese purchase of IMF gold to be patently bullish toward gold prices this morning, but apparently the market is more concerned about outside market action, than it is of potentially supportive demand side news. Clearly some traders have come to the conclusion that the IMF/Chinese gold issue could eventually lend some support to the Greenback and that in turn has discouraged some gold players. One could suggest that the market was already aware of the Chinese intention (some would say the need) to increase their gold reserves, but in the end it is possible that a number of gold players will eventually see the Chinese IMF gold reserve purchase talk, as a major fundamental underpin for gold prices. In the short term, the gold market might be seeing some initial pressure off the latest positioning reports, which showed a further build in Speculative longs. Some players are also suggesting that the violation of the even number $1,000 mark on the charts early this morning prompted some technically related stop loss selling. At least initially, the December gold contract was able to recoil from its trek below the $1,000 level and that in turn prompted some traders to suggest that some bargain hunting buying was being seen.

SILVER MARKET FUNDAMENTALS: With a big range down extension in December silver in the early going today, the bears would seem to have a technical edge to start the new trading week. Clearly a strong Dollar is providing a large measure of the selling impetus, but it is also possible that broad based weakness in equity prices and broad based weakness in a host of physical commodity markets is adding into the selling impetus in silver trade this morning. Like the gold market, it is also possible that some silver traders are concerned that silver long positioning is overextended, in the wake of the most recent positioning reports. In short, the silver market is seeing a number of bearish internal and external factors and that probably puts the bull camp back on its heels in the early action today. It should be noted that silver exchange warehouse stocks did post a somewhat noted decline at the end of last week and that could provide the bull camp with some measure of confidence this morning.

PLATINUM: After making a series of record spec and fund long position readings several weeks ago, the Platinum market has once again seen another fresh record spec long reading in the latest weekly COT report. In fact, the “combined” spec and fund Net Long position in Platinum was 20,965 contracts as of early last week. In the face of a sharply higher Dollar, a record spec long and a lackluster economic view, one can suggest that the bear camp has a number of arguments in its favor. Near term downside targeting in the January platinum contract is seen down at $1,300.

COPPER: With a noted downside extension on the charts and a quasi technical failure already seen today, we suspect that the path of least resistance in copper for the coming two sessions is set to point downward. With an ongoing series of big builds in LME copper stocks, a noted rally in the Dollar and weak equity prices, the bear camp would seem to have a number of internal and external factors in its court this morning. While the September 15th Commitment of Traders with Options report for Copper showed the Non-commercial position to be net short only 1,988 contracts, with the Non-reportable position net long 1,144 contracts, and that made the “combined” spec and fund position net short 844 contracts as of early last week, the copper market wasn’t technically vulnerable off the COT readings. Initial downside targeting in the December copper contract this morning is seen at $2.74, with even lower targeting seen down at $2.72 in the event of a multi day slide in global equity prices.

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The copper bulls have lost their edge! In fact, in the wake of a slightly bearish weekly Shanghai copper stocks report from last week and a minor “gain” in LME copper daily stocks, it would seem as if the fundamental outlook for copper is patently bearish into the US opening today. While we would not make a big deal out of a single day rise in LME copper stocks, that event does seem to add to the bear’s case this morning. With the additional pressure created by the slide in global equity prices overnight and the rising US Dollar, one should not rule out a quick slide back to the June low of $2.1235. As in the stock market, we don’t see the prospect of massive panic style liquidation in copper, but we do think that the bear camp is indeed set to control prices for the better part of the coming week. While some brokerage firms remain up beat on the longer term view toward copper prices, the near term outlook should belong to the bear camp. Initial targeting today is seen at $2.2005, with another key chart point seen down at $2.1740 basis the September copper contract.