Base metal rallies signal short-term uptrends

NEW YORK (Reuters) - Price breakouts in base metal markets late last week point to more short-term gains, but whether those rallies can push past an initial bout of enthusiasm would first require a sustained sideways pattern around newly achieved peaks.

In copper, though other base metal charts concur, a sharp move up last Thursday to levels last seen in November convinced some analysts that a new leg up had begun.

Analysts said they still view the advance in copper and other base metals as predominantly technical, and would be convinced of a trend change only after prices spent time at current higher levels. Otherwise, the advance was merely a bear market rally and was vulnerable to a sell-off to new lows.

"At this point, I don't think it's the start of a new bull trend. I think it's a bear market rally. At least in the near term, this rally is being induced by people forced to cover bad short positions," said MacNeil Curry, North American technical strategist at Barclays Capital in New York.

Massive outstanding short copper positions, bets that prices will fall further, could send prices up even further when their holders unwind those bets.

For the week ending February 24, the CFTC reported copper futures held by speculators reached a record net short position of 27,494 lots as prices remained under pressure from global economic stress. By March 17, CFTC data showed short copper positions had ebbed to a net 18,847 outstanding lots.

"That's still a significant short base. That's not a position that gets adjusted in one week," said Curry, who looks for a move up to $4,300 or $4,500 a tonne for copper traded on the London Metal Exchange, with potential to $5,000.

He said he sees short-term support at a trendline and recent low of $3,725 and $3,671. A move below that area would warn of a bigger decline than previously estimated.

LME copper settled the kerb on Wednesday at $3,965 a tonne after reaching a four-month peak of $4,130 a tonne a day earlier.

What happens after prices reach their next upside targets remains anyone's guess. Massive and rapid slides off record peaks achieved last year by many base metals down to lows unseen in four to seven years by December or January, left many analysts only willing to make forecasts one step at a time.

Adam Sarhan, founder of The Sarhan Analysis in New York, said he would need to see prices build a sideways pattern for at least the next few weeks before he would be convinced base metals have launched longer-term uptrends.

He added that the recent technical advance would also need fundamental news to back it up.

Meantime, he said he sees the price gains as a bear market rally with the intermediate and long-term outlook still bearish and a pullback to new lows still possible for all the metals.

"In order for me to turn bullish, we're looking for bullish technicals to emerge and a bullish fundamental case to be made. At this point it's just not there," he said.

More bullish was Zachary Oxman, senior trader with TrendMax Futures in California, who said he was convinced by last week's breakout of a long-term uptrend in all the metals.

"Now I think we're seeing a flip to a longer-trend bias to the upside, because the short trend is certainly over in that market," said Oxman.

(Reporting by Carole Vaporean; Editing by David Gregorio)