Commodity ETNs, ETFs Suggest the Global Economy May Pick Back Up

 |  Includes: JJC, JJM, JJN, JJT, JJU, LD, PGM, SPY, VWO
by: Gary Gordon

Before it was fashionable to question the sustainability of worldwide GDP growth, I did exactly that. I questioned it. (See March 9, 2011’s “Copper ETFs May Be Indicating A Pause For The Bull Market.”)

It wasn’t that I believed that developing economies were raising rates too rapidly. Nor did I insist that recovery in the developed world could only be explained by the accommodative policies of central banks. In essence, it was Dr. Copper that raised my eyebrows.

More specifically, iPath DJ Copper (NYSEARCA:JJC) peaked in mid-February. It fell below a 50-day simple moving average in March. It hit lower lows in four consecutive months from February through May, dropping as much as -17% from a February peak to a May floor. And it currently sits below a long-term 200-day moving average.

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JJC 200

So why do I get the sense that things may soon change for the better? Since iPath DJ Copper (JJC) hit a 2011 bottom in the month of May, it has risen 5.5%. JJC has also shown a capacity to break through technical resistance to the upside. What’s more, Bloomberg recently reported that copper stockpiling in China may have abated by 50% over the last two months, suggesting that the country will increase imports dramatically to keep up with its rapid growth needs.

And there’s more. Goldman Sachs sees copper rising 20% from current levels. Similarly, many industrial metals in the iPath ETN stables have rallied off respective May lows.

Industrial Metal ETNs Bounce Off Respective May Lows
Approx % (Through 6/16)
iPath DJ UBS Lead (NYSEARCA:LD) 9.6%
iPath DJ UBS Copper (JJC) 5.5%
iPath DJ UBS Industrial Metals (NYSEARCA:JJM) 3.1%
iPath DJ UBS Aluminum (NYSEARCA:JJU) 2.2%
iPath DJ UBS Platinum (NYSEARCA:PGM) 0.5%
iPath DJ UBS Nickel (NYSEARCA:JJN) -4.2%
iPath DJ UBS Tin (NYSEARCA:JJT) -6.4%
Vanguard Emerging Markets (NYSEARCA:VWO) -1.3%
SPDR S&P 500 Trust (NYSEARCA:SPY) -3.5%
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As copper demand picks up, and as the demand for other industrial metals rises, emerging market stocks should outperform developed world stocks. Note the marginal outperformance of VWO over SPY since respective low points of May.

The May-June swoon for stock assets could get uglier. And even though many of the metals come directly from the Periodic Table of Elements, this assessment hardly meets the rigors of scientifc scrutiny.

Nevertheless, paying attention to Dr. Copper has served me well over the past 22 years. If iPath DJ Copper (JJC) can break through technical resistance and stay above a 200-day moving average, one should expect resources-intensive emerging market stock ETFs to follow suit. (Keep a watchful eye on iPath DJ Industrial Metals (JJM) as well.)

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.