JJC and a Half-Full Copper Glass

Demand for industrial metals has been so crazy during the past couple of years that homebuilders were being robbed of their newly installed copper pipes.

With that in mind, glass-half-full traders may think the current housing market swoon will have a salutary effect on the crime rate. But for the glass-half-empty crowd, the record drop in existing home sales reported Wednesday fuels further fear about a deepening slump.

No matter how you view the glass, there's no doubt yesterday's National Association of Realtors [NAR] report impacted the demand outlook for copper and building materials.

Sales of existing homes fell 8 percent in September, the largest decline since 1999 and nearly double the 4.5 percent drop economists had expected. The median home price also declined, according to NAR.

Traders on the COMEX Division of New York Mercantile Exchange must have viewed the report through half-empty glasses. By day's end, December copper futures had fallen 6.1 cents, or 1.7 percent, to settle at $3.4525 a pound. Wednesday's low of $3.43 represents a 50% retracement from the $3.78 life-of-contract high reached on October 2.

More tug-and-pull should be expected between the half-empties and the half-fulls. Technically, you could view the current pullback as a bearish minor cycle within a larger bull market. Several indicators—stochastics, MACD and momentum, specifically—seem to point that way.

The half-fulls can now take aim at the market with a new tool. Barclays' iPath DJ-AIG Copper Total Return Sub-Index (JJC) exchange-traded note [ETN] was launched last week, together with a raft of other commodity subindex ETNs. JJC offers, for 75 basis points, and fifty bucks a note, pure COMEX copper exposure without the need to establish and maintain a futures account.

This makes a long-term allocation to copper practical, as well as enhancing the ability of slicers-and-dicers to better shade their commodity bets with copper over- or underweights.

Of course, the half-empties can use the ETNs as well. They'd just short JJC notes. In any event, the new ETN will likely lend a patina to copper allocations not seen before.

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