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“I believe there is something out there watching over us. Unfortunately, it’s the government.”

– Woody Allen

Fundamentally, copper prices could fall.

Technically, copper prices could rise.

But either way, copper appears due for a big break.

HONG KONG, March 27 (Reuters) – China holds more than 1 million tonnes of commercial stocks of refined copper cathode currently, a level last seen in 2009, due to high imports and weak domestic demand, which may slow arrivals in the second quarter, analysts said on Tuesday.

High stocks may also prompt Chinese smelters to cut refined copper output, the analysts and sources at smelters added.

I’ve kept my premium service members aware of this burgeoning bearish supply glut and the impact Chinese demand will have on the price of copper. But as copper is tugged back and forth between bearish fundamentals and bullish risk appetite sentiment, the technicals are setting up in what is typically a very bullish trading pattern:

Two things to note:

1)      The narrowing range constitutes a pennant formation that typically resolves itself in the direction of the trend (in this case, up.)

2)      The Bollinger Bands bubbled out and now have narrowed rapidly, typically indicating a large and fast breakout (in either direction) is in order.

Often, especially in the nearer-term, the fundamentals seem not to matter and price action is dictated by sentiment and technicals. If this holds, then copper could be on the verge of a substantial break to the upside.

Today’s price action is not confirming that yet, as copper futures are down nearly 2% on the day.

In addition to yesterday’s latest update on the copper supply situation in China, overnight earnings releases suggest Chinese companies are feeling the pressure from a slowing economy. That is influencing copper prices today.

SHANGHAI, March 28 (Reuters) – China shares ended down 2.7 percent on Wednesday, the biggest one-day percentage drop in four months, as weak corporate earnings reports increased worries over the domestic economy.

Remember: there is no such thing as an obvious or easy trade. Today’s China news is likely hurting a lot of nascent copper longs.