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Funds send COMEX March copper soaring to new highs

NEW YORK, Jan 12 (Reuters) - A flurry of fund buying sent

COMEX copper futures soaring to new contract highs basis the

March position, and traders said the market's technical outlook

was strong.

Funds started the buying spree in late trading Tuesday and

picked up the pace to lift values.

The active March copper contract jumped 2.25 cents to 86.60

cents a lb, trading between 84.30 and the new contract high of

86.95. Spot January closed up 2.10 cents at 85.90 while

February ended up 2.30 cents at 86.20 cents.

"There was a lot of fund buying, a lot of new buying," said

one COMEX trader. "Volume was pretty good. We hit stops but I

think the stops were new buying and not stop-losses

(shortcovering). They were initiating new positions."

"It was more of a technical move and we took out stops

above 85.40 and through the contract highs around 86.20-86.50

level," agreed David Meger, metals analyst at Alaron Trading in

Chicago.

Funds are still top-heavy with long positions prevailing

and selling had been coming in at the higher end of the range

to keep prices in check.

"We had a very fund-motivated move today and we are sitting

on very heavy resistance. The last commitment of traders

report, including options and futures, was showing a net long

position of 20,095 contracts," said Meger.

Chart watchers said key resistance is sitting at 87.00

cents with psychological resistance at 90.00 cents, and support

is pegged at around 83.80 and 84.00 cents.

"Right now, it's purely a numbers game. They're just adding

fuel to the fire," said the trader. "It really looks like it's

a sale up here but people are afraid to get short."

London trading made significant strides toward the upside

on technical trading to inch just above its resistance. The

three months price closed the afternoon kerb at $1,882, up $23.

After surpassing the $1,880 resistance level, dealers are now

eyeing a move toward $1,900.

Final volumes Wednesday were estimated at 16,000 contracts,

compared with final volumes Tuesday at an estimated 9,000

contracts.

"We have anticipation of better demand down the road. But

the bottom line is you have an excess of supply with good

demand but not great demand worldwide," said Meger.

"Anticipation is one thing but actual demand is another and

we have no driving force to see this move continue other than

from a technical perspective," he added. "As of right now, one

has to sit with the technical move because we've opened the

door for a continuation move higher, and I think it behooves

you to see if the market can continue through...87.00 cents."

LME warehouse stocks rose 1,150 tonnes to 788,400 tonnes in

Wednesday's report. COMEX inventories on Tuesday were up 244

short tons at 93,851 tons.

The nine-day relative strength index for March copper blew

through the neutral zone to just below overbought territory as

it closed at 69, compared with 37 on Tuesday.

Technical analysts usually interpret an RSI reading at 70

or higher as indicating overbought conditions and a reading at

30 or lower as oversold.