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Copper crashes 2 percent; Further downside seen

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Copper crashed over two percent in the early session as profit booking took hold of prices in an oversaturated market which has been extending gains fueled by the optimism of Chinese recovery.

LME Copper is down 1.62{606507f6cc638f72e1f14f549dc47d5f6f23d7be8b40476aeb64193ea94ca283} to trade at $6800.50/ton whereas domestic prices are down over 7{606507f6cc638f72e1f14f549dc47d5f6f23d7be8b40476aeb64193ea94ca283} to trade at Rs.438.60 currently.

The rally has been driven by an improving Chinese economy and supply side concerns across the globe but we feel that the bullishness may have overstretched as the market continues to be supplied decently despite shortages.

The situation over the remainder of the year may get difficult as the future supply continues to remain doubtful but even with this, excessive optimism should be treated with caution.

Technically, the upside momentum has been showing early signs of failing which indicates a potential reversal in the short term. It has been noted that the selling in the early session reverses course as the LME opens and this will be one of the key signs to watch out for – a sharp selling in the LME/evening session should provide a major confirmation that the trend has indeed reversed and will call for further downsides.

We see support at Rs.444 as being a crucial level below which prices are already trading but only a daily close below this would confirm that bears have entered the market.

On the downside, we see Rs.430-Rs.425 as potential target levels in the coming week whereas, on the upside, a break above Rs.447 would negate any chances of a selling and call further newer highs in the week ahead.

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